Mongolia: Value-Added Cashmere Production and Export Project

Agriculture, natural resources and rural development / Agro-industry, marketing, and trade

The agriculture sector in Mongolia is considered the key in diversifying the economy away from its heavy reliance on the mining sector. Mongolia has a natural competitive advantage in cashmere production with its climate and terrain extremely well suited for cashmere goats. Mongolia is second largest producer of raw cashmere after the People's Republic of China (PRC) and produces a third of the global supply of raw cashmere. Despite this high level of raw cashmere production, only 10% of raw cashmere is fully processed domestically. There is much room for additional value-add through secondary processing of cashmere domestically.

Gobi is the largest cashmere manufacturer in Mongolia. As an integrated cashmere producer, Gobi manages its entire value chain from sourcing raw cashmere directly from herders to processing and manufacturing cashmere products at its primary and secondary processing facilities in Ulaanbaatar. The project will help Gobi expands its primary and secondary processing capacity, adding more value domestically and further integrating the cashmere value chain.

The project is aligned with the ADB Midterm Review of Strategy 2020, which emphasizes the need to invest in agriculture to increase productivity and strengthen links with global value chains. The project is aligned with all three strategic pillars of the Mongolia country partnership strategy: (i) promoting economic and social stability, (ii) developing infrastructure for economic diversification, and (iii) strengthening environmental sustainability. The project is also aligned with the IED validation of the country partnership strategy and its emphasis to _promote diversification of the economy with a focus on improving the productivity of agribusiness_. As Gobi''s exports reach the PRC, a DMC member, and non-DMC regional members (including Hong Kong, China, Japan, the Republic of Korea, Singapore, and Taipei,China), the project is aligned with ADB''s operational plan for regional cooperation and integration, which highlights the importance of raising competitiveness in connected markets including through promoting and facilitating the participation in global and regional value chains by small and medium-sized enterprises and smallholder farmers.

The project is aligned with ADB''s operational plan for agriculture and natural resources, 2015 to 2020, which recommends greater private sector agribusiness investment by ADB through working with strong agribusiness sponsors adopting best practices. The project will complement ADB' sovereign assistance program in Mongolia which aims to increase the value addition of the country' rich yet underutilized livestock and other agricultural resources through (i) value chain investments by agro-enterprises and cooperatives, (ii) capacity strengthening of primary producers and processors, (iii) improvement of marketing and technical capacity of agroenterprises and cooperatives, and (iv) development of Mongolian product brand(s). The project will also benefit from and complement the completed sovereign project that improved the livelihood of herders by ensuring sustainable pasture management in Bayanhongor aimag, a region where Gobi has extensive raw cashmere procurement activities.