December 1, 2006｜Mongolia
Senior Officer, Trade and Economic Cooperation Department Ministry of Industry and Trade, Mongolia
Cashmere processing production is a strategically significant sector with great influence on Mongolian exports. Looking at Mongolian exports in terms of total production, cashmere products are in third place after gold and copper.
The special qualities of cashmere are highly valued in world markets. China and Mongolia rank among the countries with rich resources of raw cashmere.
About 14,000 tons of cashmere are obtained around the world per year. 67.7% of this figure is accounted for by China and 21.0% by Mongolia, with the remainder being accounted for by countries such as Pakistan, Afghanistan, Iran, Russia, Albania and Canada. In addition, Italy and the UK purchase dehaired cashmere from markets around the world and manufacture value-added cashmere products.
The development of Mongolia’s cashmere processing industry is directly connected with the following issues:
1. The Price of Cashmere
The price of cashmere depends not only on domestic market demand but also on global market demand. In other words, the cashmere price depends heavily on international price changes. The price of dehaired cashmere per kilo was $127 in 1990, but declined to $37 in 1993, rising only slightly to $42 by 1998. Although the price increased further by 2000, it declined again in 2001. The price of dehaired Chinese cashmere is $68-79 per kilo, while dehaired Mongolian cashmere fetches $55-57 in international markets today.
The price of cashmere depends on its quality. The price of good quality cashmere is 30% higher than that of poor quality cashmere. Though Mongolian goats can provide very good quality cashmere, the quality level has declined over the last decade. This is connected with the fact that quantity is preferred over quality in Mongolia.
Chinese goats mostly yield white cashmere. Therefore, over 90% of the raw cashmere is white cashmere with a diameter of 15.0 microns and a length of 33-35 mm, whereas 80% of Mongolian cashmere is dark cashmere including 5% white, 70% black and dark brown with a diameter of 6.5 microns and a length of 35-37 mm. Therefore, the price of Mongolian cashmere is $13-22 cheaper than Chinese cashmere in world markets.
As constant changes in cashmere price in world markets always have a negative impact on the Mongolian cashmere processing industry, concentrating on identifying the appropriate conditions for the complete production of raw cashmere domestically and exporting finished products are important to the development of this sector in Mongolia.
2. The Structure, Capacity and Utilization of the Cashmere Processing Industry
Increases in demand increases for luxury products made of natural raw materials in world markets since 1980 have triggered intensive development in the field of cashmere production in Mongolia.
While there was only one cashmere and camel wool processing factory in 1989 in Mongolia, today 85 domestic and joint ventures have been established there. 60% of foreign-invested ventures are Chinese, while the rest have been invested in by countries such as Japan, Italy, Switzerland and the USA.
Taking into account the fact that most newly established factories are focused on scouring and dehairing, the capacity of scouring factories is 1.8 times greater than the capacity of raw material resource factories, while the figure for dehairing factories is 1.3 times higher. This has negatively influenced factory operations to the extent that factories are using barely 40% of their full capacity. Meanwhile, current spinning capacity is 3.6 times lower than the raw material resource capacity. From the perspective of the structure of the Mongolian cashmere processing industry, a positive trend has emerged in that the share accounted for by initial-stage processing factories has decreased by 30.0%, while the share of knitting factories has increased by 24.8% between 2000 and 2002, producing 660 tons of yarn and 7.0 million pieces of knitwear per year, but spinning capacity is still lower than scouring and dehairing production. Therefore, many knitting factories in Mongolia are importing yarn from China to produce finished products. 30% of the knitted goods produced in Mongolia are cashmere goods and 20% of those are produced by yarn prepared in Mongolia.
This lack of spinning capacity is slowing down the development of the Mongolian cashmere processing industry and diminishing its competiveness. A certain amount of investment will be necessary to increase spinning capacity. There is no possibility of solving this investment issue using current domestic resources in Mongolia. Instead, it is important to focus intensively on finding foreign sources of funding.
Mongolia was granted credit rights by the European Bank for Reconstruction and Development in July 2006. In addition, the World Bank and many other international organizations have issued various soft loans to Mongolia. I think that consistent cooperation with these banking and financial organizations will be helpful in the successful implementation of projects aimed at increasing spinning capacity in the cashmere processing industry.
3. Competitive Capacity
If Mongolia exports all of its raw cashmere without processing some of it, it can earn $60 million from exporting. If it scours and dehairs them before exporting them to European markets, it can earn $90-100 million. If it processes it further to create finished products, it will earn $180-200 million. Based on this simple calculation, it will be more profitable to produce finished products. In that case, why can we not implement such a strategy to secure more profits? The problems are as follows:
The following measures have an important role to play in improving the competitiveness of the Mongolian cashmere processing industry:
When the WTO Agreement on Textiles and Clothes was concluded on December 31, 2005, Mongolia began to receive the same treatment as China and India in US and Southeast Asian markets. Consequently, this limit caused a decrease in Mongolian cashmere product exports to the USA last year. In other words, to keep the value of exports at the same level as last year, Mongolia should negotiate with the USA through governmental channels, in order to secure lower import duty on Mongolian cashmere products.
As Mongolia is one of a biggest countries in the processing of raw cashmere, it must have its own voice and presence in this market. Therefore, there is a need to increase participation in international exhibitions and fairs, to engage in more intensive advertising activity, and develop a significant presence in e-commerce networks.
In conclusion, I believe that if Mongolia is able to improve its competitiveness and increase production of value-added products, the Mongolian cashmere processing industry could enter a new stage in its development.