Modern Mongolia and the Economics of Herding
This analysis investigates the economic hardships experienced by Mongolian herders and explores the profound influence of global forces on their traditional way of life, shedding light on the intricacies of their livelihoods amidst an ever-changing landscape.
In the early days of Soviet Mongolia, herders were required to pay taxes in animals. An exchange rate set by the government stated how numerous sheep or goats equalled one horse or one camel. Today, money prices are used, but wealth among herders is still measured by how many animals a family owns.
Subsistence level herding means 100 to 300 animals, while more than 1,000 animals would be where low-level commercial herding starts. Although the animals will be sold for cash, herders can still match their expenses to the number of animals they must sell. For example, they may need to sell 10 to 20 small animals each year, in order to send their children to school or university. Animals can be used as collateral for loans or as wedding gifts, and the salaries of assistant herders may be paid in animals.
Mongolia, a landlocked country in Asia, is situated between two giant neighbours, China and Russia. The country’s economy depends on the export of extractive products, copper and coal, more than 80 per cent of which are sold to China. With a population of only 3.3 million people, Mongolia does not produce many finished goods and must rely on imports from China, and to a lesser extent from Russia, for everything from soap and toothpaste, to medicines, cereal, fruits, vegetables, clothes, furniture, cars, and machinery. Consequently, the economy fluctuates wildly as a result of changes in commodity prices and demand from China, as well as dramatic shifts in the exchange rate of the tugrik, Mongolia’s national currency.
During two years of Covid-19 lockdowns, with the Chinese border closed, the country’s export revenues plummeted, while consumers experienced shortages and double-digit inflation, with prices for some products rising by as much as 18.5 percent in a single year.
At least 50 per cent of the country’s population live in the capital of Ulaanbaatar. About half of the city’s inhabitants live in modern apartments, while the rest live in traditional gers (yurt tent houses) without running water. People in ger districts burn coal to keep warm during the long winter, when temperatures in the capital drop as low as minus 40 degrees F (minus 40 degrees C).
People who live in apartments have jobs like those in other cities around the world. They work in banks or IT companies, teach school, drive trucks, or provide services to the mining sector. Ger district residents, however, are often herders or former herders who have, for one reason or another, lost their herd and have come to the city seeking a better life. Lacking education and skills, and having no knowledge of computers or English, many remain extremely poor.
About 20 per cent of Mongolians still live as nomadic herders. The primary animals in Mongolia are sheep, goats, cows, horses, camels, and yaks. All of these animals provide meat, while their wool and hide can be used to make clothing. Most Westerners would be surprised to learn that all five animals also give milk, a crucial staple in the herders’ diet. Mongolians make around 150 different yogurt and dairy products, more than any other culture in the world.
The main cash income for herders comes from meat and cashmere, with cashmere being the most profitable. However, the prices herders receive for raw cashmere is extremely low, with most of the profits going to commercial operations, usually in China, which process the cashmere into fine wool used to make garments.
Meat is usually sold in December, when it can easily be frozen outdoors. Milk is produced in spring and summer, the calving, foaling, and lambing season. Because milk is heavy, has a short shelf-life, and fetches a low price, only families living close to cities can generally sell it. Those who live far away cannot afford to transport it and will just use the milk for their own consumption. They may also make fermented mare’s milk (airag) or dried curd (aaruul), which can be stored and transported to be sold at a later date.
Each year, some animals are sold to purchase products which herders cannot make for themselves, such as flour, rice, sugar, vegetables, and household items. These products are all expensive, because they must be imported. When selling animals, herders have the option of selling them to agents who travel the steppes with large trucks, or they can transport them to a city or town to sell them in the market. The further a herder is from a city, the more cheaply he must sell the animals and the more expensive the finished goods he purchases are.
Mongolia covers 603,909 square miles (1.56 million square kilometers), about the same size as California and Texas combined, or the entire country of Sweden, but with a population density of only 5.5 people per square mile (2 people per square kilometer). This means, a herder could be hundreds of miles from the nearest city. Last year, because of record high gasoline prices, small herders, selling fewer than 20 animals, found it uneconomical to drive to the city. Instead, they were relegated to selling them on the steppes, for as little as $30 per animal.
While the average income in Mongolia is around $4,000 per year, the cash income of some herding families is below $1,000 per year. From the sale of animals, herders have to pay for their children’s education, plus all of the necessities they cannot make. Additionally, during particularly harsh winters, they have to buy feed to supplement the animals’ diet or the herd could die, leaving the family with nothing.
Every few years, the country is plagued by dzud, a natural disaster which kills off millions of animals. The dzud of 2009-2010 killed 22 percent of all the livestock in the country. After each dzud, large numbers of families who have lost their herds move into urban ger districts, further suppressing wages for low-skilled labor.
Spending time with herders, riding horses on the steppes, sleeping in a ger, wrestling (the national sport), caring for animals, and eating fresh yogurt and meat, it is easy to be lulled into a sense of idealised contentment, romanticising an apparently simple lifestyle. Herders trace their origins back thousands of years, and in many ways they still live as their ancestors did. But unlike previous generations, herders’ livelihoods are now subjected to external and global forces that their ancestors could never have imagined.
Economics of Herding’s Risk Assessment
When the pandemic caused the closing of the border with China, the price of cashmere in Mongolia crashed because of an inability to export. This hurt herders, as they saw their incomes dwindle and import prices increase. The lack of exports also meant that fewer U.S. dollars were flowing into the country and the tugrik went into free fall, losing about 30 percent of its value against the dollar. Private citizens scrambled to convert their tugriks to dollars as a hedge against currency devaluation.
The Bank of Mongolia needed dollars for their cash reserves and to service foreign loans. International companies operating mines needed dollars to repatriate profits to foreign investors and to service foreign loans. As a result, a dollar shortage developed. This became even worse once the Ukraine War broke out.
Shortly after Russia invaded Ukraine, waves of Russians crossed the border, using rubles to buy up all of the dollars they could find. Western sanctions against Russia tanked the ruble. And most Mongolians found themselves holding tugriks that were losing value, while money changers were sitting on piles of completely useless rubles. Prices were going up, herders were earning less from the sale of their animals, while the money they received lost much of its buying power.
Indebtedness is widespread in Mongolia. Nationwide, household debt is equal to about 22 per cent of GDP. About 84 per cent of the adult population owe money to non-banking financial institutions (NBFI) which charge much higher interest rates than banks. Pawn shops are extremely common and charge an average of 6 per cent interest per month.
Both NBFI and pawn shops accept animals as collateral, but only take possession of the animals if the borrower fails to repay the loan. Black market loans, from loan sharks, are also available, at a rate of 1 per cent per day. A peer-to-peer-lending cellphone app is growing in popularity, making unsecured loans of as little as $14 for periods of up to 30 days. Herder loans are also available from banks, with interest rates as high as 21.6 per cent.
Because of their nomadic lifestyle, herders generally send their children to live in the city during the academic year, so they can attend school. This means that each fall, the parents need to find money for tuition and board. For a lot of herders, life is a cycle of borrowing in the fall, and then paying interest and principal when they receive seasonal cash injections throughout the year.
In conclusion, Mongolian herders have been facing challenges coming from the profound impact of global dynamics on their traditional way of life. The intricate balance between livestock ownership, commodity prices, imports, inflation, and external influences significantly shape their livelihoods, underscoring the complexity of their situation.
Author: Antonio Graceffo
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