Mongolia Resident Mission

Spotlight Interview: Kevin Rutter
Promoting Agriculture Sector Development in Mongolia
June 2004

Why has the Government of Mongolia taken a loan from the ADB to implement this Project?

Recognizing the importance of agriculture in the country's economy and the need for structural adjustment in response to privatization of state farms and the national herd (following the cessation of financial support from the former USSR), the Government of Mongolia has attempted to stimulate private investment in agriculture through a combination of strategic public investments and changes in Government policy.

It was hoped that, by such actions, agricultural output could be increased in the western aimags of Zavhan, Uvs, Hovd and Govi-Altay - the main focus of the project, providing employment opportunities for the increasing numbers of rural poor by addressing constraints to sector growth including the limited access to production inputs, underdeveloped marketing alternatives and better utilization of the country's natural resources.

Will the activities be sustainable?

Project activities are directed at developing sustainable outcomes. While some of the investments are of a public nature and therefore difficult to recover the funds spent, a significant number of activities directly benefit private interests and must be recovered by the Government. For example - in the well rehabilitation program, herders receive long term user rights for the well rehabilitated on the condition they continue to maintain the facility in operational condition.

A well which was rehabilitated in Yaruu soum, Zavhan aimag, in 2002. Twelve herder families and 80 camels, 154 horses, 227 cattle, 1468 sheep and 1138 goats are watering from this well regularly.

To do that, herders must charge water service fees to meet the operational, maintenance and well operator expenses. Also the repayment of 50% of the re-development costs by beneficiary herder groups into a soum well rehabilitation fund resources the local government to continue rehabilitation activities in the future.

Wherever feasible and equitable, cost recovery principles are adopted to ensure sustainability and the preservation of the value of the funds spent. In the case of the rehabilitation of irrigation facilities, the beneficiary farmers must pay water user charges to ensure that the scheme is maintained in the future without depending on government resources. For more information on well rehabilitation cost recovery, read Water Point Rehabilitation Working Group Report.

Top

If the production directed activities are successful, where will the incremental production be sold?

One of the constraints in rural Mongolia is the limited market access rather than a lack of real demand. The project is addressing this weakness by promoting cooperative action by herder groups in the marketing of their produce - skins and fibres and in some instances - meat. It is also promoting additional value added processing in local areas to generate employment.

In the case of the more perishable food items such as fruit and vegetables, the project is trying to introduce processing and storage technologies to spread the peak supplies experienced at the end of summer.

Farmers are learning pesticide-spraying method using by knab-suck sprayer.

The western area where the project is being implemented is somewhat isolated and market demand is restricted to local sales. The project is promoting the broadening of marketing options and, through cooperative action, the aggregation of marketable quantities of primary goods for resale to areas outside the western aimags.

In this way, the incremental production being generated under the project is intended to be sold at prices that are sufficient to give producers a reasonable return for their efforts and improve household incomes.

Top

Will the project change how Government addresses agricultural development?

There is a second part to the project that offers Government some incentive to implement change in its agricultural policies thereby creating a more favourable investment climate for the private sector. Associated with the investment loan for the project ($10 million) is a policy loan amounting to $7 million that was released in two tranches - upon signing and after achievement of agreed criteria.

This loan was granted on the condition that the Government withdrew from direct production activities and input supply functions as well as agro-processing and concentrated more on its role of providing the appropriate investment climate to enable the sector to grow based on its own comparative advantages where that can be established. The policy development aspects of the project should have a longer term and indirect impact on development of the sector and promote a more commercially oriented agricultural industry.

The adoption of measures to ensure sustainability of achievements under the project is clearly an advantage to Government as it reduces local administrations’ dependence on the Government’s scarce revenue.

Top

Mongolian agriculture is perhaps best known for its extensive livestock production systems. How is the Project impacting on that sub-sector?

More than 120 veterinarians were trained in field survey techniques in the four western aimags. The photo shows practical session away from the training room taking blood from animals. Trainees were also introduced to laboratory equipment procured by the project.

Apart from the rehabilitation of wells to provide water in previously underutilized pasture areas and attempts at cooperative marketing initiatives for livestock products, the Project is trying to improve the international status of the livestock sector in two main areas. Firstly it will conduct comprehensive epidemiological surveys to establish the freedom from selected economically important diseases (Rinderpest and Foot-and-mouth disease) and to establish the incidence of other economically important diseases (Glanders, Dourine and Surra) in order to substantiate disease status with the international authorities.

It is also providing training in meat inspection procedures to assist exporters in their attempts to gain acceptance to a wider range of marketing alternatives for meat and meat products other than the traditional markets in Russia. This has involved a thorough and statistically significant survey of over 36,000 animals, the rehabilitation of serum laboratories in the western aimags and central veterinary laboratory and extensive participation of private veterinarians who received training in sampling and laboratory analytical procedures.

Top

How is the Credit Program being implemented and what progress has been achieved?

Mongolia has historically suffered from directed credit schemes that have resulted in the collapse of many commercial banking operations due to non-repayment of loans, particularly in the larger scale cropping sector in the late 1990s. As a result, banks have become very weary of lending to the sector and have retreated to only those customers with good security (usually houses) with a rapid turnover (usually traders).

There is an obvious need to increase rural lending for both production loans and also in term loans where repayments can be made over a number of years. The Project has been addressing these through a joint approach of training for bank staff to familiarize them with the unique and peculiar characteristics of agricultural production under local conditions and the training of sub-borrowers in repayment responsibilities and general banking requirements. As an incentive, it has made available a line of credit that can be accessed by qualifying financial institutions that are active in rural lending in the project area.

A feature of this line of credit is that it requires banks to contribute 20% of the loan value. Furthermore, the banks are responsible for assessing the creditworthiness of applicants and for setting the terms and conditions of the loans that are currently limited to MNT10 million per applicant. The project is assisting in monitoring the loans and is working closely with the participating banks to ensure a high recovery rate. The demand for loans has exceeded expectations and over 2,200 loans have been issued at the end of the second year of implementation amounting to about MNT 5 billion.

Recovery rates are currently high and the range of borrowers has been broadened to soum borrowers to include producers, processors and marketing activities as well as trading. The Project has the mandate to assist in the development of term lending products in the later stages of the credit component.

Top

Herders and families have access to credit up to $10.000 under the ASDP Credit Line. They are using their loans for many purposes such as poultry houses, swine houses and fodder preparation, breeding of good quality cashmere goat and semi fine wool sheep, and planting vegetables. This cooperative called 'Buyant' was established in May 2002 with 580 hens in Hovd aimag.

How successful were the project activities in 2003?

As the roject reached its mid-point, 2003 witnessed the first impacts of and lessons learnt from the Project. The Green Revolution component created opportunities for farmers and vegetable growers in aimag and soum centers to increase their family incomes by providing training on seedling preparation and planting of vegetables in plastic houses, plant protection and small-scale irrigation, vegetable storage and processing and assistance in marketing for processed products.

Almost 2000 person-days training was provided in 2003 and 2,247 beneficiaries have been provided seed and equipment supplies. Farmers’ yields per hectare dramatically increased under the influence of the improved seed material, varieties and equipment piloted. Vegetable growers of Guulin village in Govi-Altay aimag harvested 10-12kg cucumber and 8-10kg tomatoes per square meter.

Vegetable growers in Ulaangom soum planted early cabbage varieties that were harvested in July when prices were at their highest. Hovd vegetable growers carried out the trial cultivation of water and other melons in green houses, harvesting melons 20-25 days earlier than using traditional growing techniques and improving the harvest by 30% compared with standard practices. Average yields in western aimags were reported to have increased by 12.5% in 2003.

Veterinary Services component has been implemented effectively and efficiently. It provided training for serologists, epidemiological staff and meat inspectors on detection of economically important diseases and meat inspection, sanitation in meat plants and hygiene. A total of 25 chemicals, 14 different types of glassware, 25 units of small lab equipment and 15 units of large laboratory equipment were supplied and installed in Uvs, Hovd, Zavhan Govi-Altay aimag veterinary laboratories and the State Central Veterinary Laboratory. As a result, there has been dramatic improvement in the veterinary service capacity in the western aimags.

A total of 125 wells have been rehabilitated to the end of 2003 and 103 well operators were trained in well operations and maintenance.

The Project has provided equipment to cooperatives for the development of their production activities in 2003. Items include eight small tractors (20 HP), trailors, ploughs, hay mowers and rakes, seedlers, fodder conditioners, threshers to herder/farmer cooperatives to improve their fodder conservation activities. In the area of agro-processing, two felt manufacturing plants have been trialed in Uvs and Hovd with repayment arrangements spread over three years at an interest rate of 1.2% per month. Three manual combing units were provided to cooperatives in Zavhan, three to Gobi-Altai and four to Hovd on a trial basis. In order to support cropping cooperatives, the Project rehabilitated four irrigation systems in the western aimags that increased cropping area from 2,055 ha to 3,955 ha.

The rural credit line is one of the successful components of ASDP. As of 31st December 2003 the cumulative number of ASDP loans issued through PFIs numbered 1435, amounting to the sum of MNT 2.7 billion. From the start of the project, sub borrowers numbered 2217 amounting to the sum of MNT 4.9 billion. By the end of 2003, MNT 2.2 billion had been repaid in full. Some 21 loans were rated as non-performing loan (NPL) as the sub-borrowers had failed to meet the interest payments by the due dates.

The amount of nonperforming loans at the end of the year was MNT 75.5 million. That is 2.8% of the current outstanding loan portfolio through ASDP. A total of MNT 689.7 million was lent to 442 new sub-borrowers. Sub-borrower training was provided in 2003 directed at herder training, agro-processing training, intensified livestock production training and cooperative finance training.