Direct Line Call Opening Remarks by Ambassador Jennifer Zimdahl Galt

AMBASSADOR GALT: Good morning, good afternoon, and good evening to those of you who are joining this Direct Line presentation: Export Opportunities in Mongolia’s Agribusiness and Livestock Sector.

I am joined here in UB today by Ms. Enkhtsetseg from Mercy Corps and Mr. David Reiner from MSM, an agricultural equipment distributor.

I also have with me key members of my team, Economic Chief John McDaniel and Senior Commercial Specialist Michael Richmond.

This is the second in a series of Mongolia Direct Line Presentations that, over the coming months, will explore export opportunities in Mongolia’s key business sectors.

Late last year, I provided a general overview of the business and investment climate for exporters. Today, we move to our first focused topic – agriculture.

I’ll start off with an overview of the current agriculture business environment and potential from the perspective of the U.S. Embassy.

Ms. Enkhtsetseg and Mr. Reiner will then give some specifics related to the livestock and agricultural equipment sectors.

The remaining time will be for your questions.

Before I begin, I would like to remind everyone that detailed information on Mongolia’s business environment can be found in our 2016 Mongolia Country Commercial Guide and 2016 Investor Climate Statement, both available on our Embassy website.

First, I’ll give a general picture of the current state of the agricultural sector in Mongolia, including its impediments.

Next, I’ll discuss our sense of current agricultural developments, including the Mongolian government’s efforts to foster an agricultural export sector.

Finally, I’ll offer U.S. Embassy views on likely targets of opportunity for U.S. exporters and investors.

Agriculture has long been a mainstay of Mongolia’s economy both as a source of national revenue and employment.

The National Statistics Office of Mongolia in 2016 reported that the sector generated about 13 percent of Mongolia’s GDP, and directly or indirectly employed more than half – 31 percent – of Mongolia’s three million people.

Mongolians grow wheat, potatoes, and rapeseed, and are experimenting with many other crops, seeking those that can be profitably grown during Mongolia’s short and relatively dry summers.

The livestock sector, comprised mostly of herders and with little downstream processing, raises cattle, goats, sheep, horses, and camels, and accounts for nearly 83 percent of agricultural products.

The goats and sheep contribute to the domestic cashmere and hides and skins processing sectors.

Altogether, according to the National Statistics Office, Mongolians possess more than 60 million herding animals.

While central to Mongolia’s economy, it is only recently that investors in agriculture have moved to improve the efficiency and profitability of the sector.

Despite some improvements, however, several impediments remain.

First, animal diseases are prevalent and persistent, and the Mongolian veterinary system has been unable to promptly and effectively contain and manage outbreaks.

These animal disease outbreaks often lead Mongolia’s neighbors to ban Mongolian exports.

Second, even when exports are permitted, Mongolian meat products do not command high market value.

Potential regional customers believe that traditional Mongolian breeds do not produce the best quality meats.

Furthermore, Mongolian animals typically suffer through Mongolia’s frigid winters and must forage for grass beneath the snow.

During socialist times, Mongolia cultivated almost120,000 hectares of grass to feed its approximately 20 million herded animals; Mongolia today cultivates less than 20,000 hectares for its more than 60 million animals.

Third, the ever-increasing number of animals exceeds the carrying capacity of the pastureland – and the impact of global warming further exacerbates the deterioration of the pastureland.

Fourth, Mongolia’s sanitary and phytosanitary standards fall short of international standards.

Mongolia’s regulatory and testing systems need investment and improvement.

So, obstacles exist. But the Mongolian government, international donors, and the private sector are working to reduce these barriers and to uncover commercial opportunities in the process.

For example, the government’s National Action Plan identifies development of the agricultural sector as its top priority.

More specifically, it seeks development of an agricultural export sector.

The cash-strapped Mongolian government has focused primarily on policy measures, such as drafting and introducing new laws on organics, genetics, animal health, and rangeland. These laws are being developed with an eye to exports.

Mongolia also has many international partners that are helping develop the agricultural sector.

For example, the U.S. Department of Agriculture’s Animal and Plant Health Inspection Service – APHIS – works with both the Ministry of Food, Agriculture, and Light Industry and the General Agency for Specialized Inspection to enhance veterinary capacity and better respond to transboundary animal disease.

You will hear in a moment from Mercy Corps on its efforts to help develop meat exports, primarily beef, by addressing many of the challenges I mentioned earlier.

There are also active projects supported by the UN Food and Agriculture Organization, the Swiss Development Corporation, the Asian Development Bank and the World Bank.

In fact, the World Bank plans to release a study next month on the market potential to sell Mongolian beef in China.

As in any healthy democracy, the private sector often takes the lead in promoting innovation and change, and this is certainly true in Mongolia.

Several trailblazers have started to address the sector’s impediments to demonstrate that internationally competitive agricultural products can be produced – profitably and sustainably – in Mongolia.

For example, there are farms with thousands of hectares of cultivated grasses that are being fed to thousands of imported cattle – and some of these fields are irrigated with and harvested by U.S. equipment.

A relatively new concept, intensive farming is expanding across Mongolia.

U.S. exporters and investors are poised to play an important commercial role in the modernization of agriculture in Mongolia.

To this end, we hosted a trade mission in June 2016 with several U.S. agricultural companies who came to explore Mongolian market opportunities and succeeded in making significant business connections and agreements.

The U.S. Embassy in Mongolia and the U.S. Department of Commerce are planning to host a second agricultural trade mission this fall, bringing more U.S. companies to build on last year’s success.

Mongolian farmers need and want U.S. equipment.

Mr. Reiner will talk about this shortly, as well as the challenges of financing.

From our perspective, we see two developments that may create great opportunities.

The first is a discussion between the U.S. Export-Import Bank and the Mongolian government to establish a credit guarantee facility to finance U.S. agricultural products.

If an agreement can be reached, this would mean that Mongolian farmers would no longer be priced out of the market and would have an opportunity to buy U.S. equipment at lower interest rates and for longer terms than is possible currently.

Second, as part of last month’s staff-level agreement between Mongolia and the International Monetary Fund, a thorough assessment of the banking sector will be conducted with the goal of making the sector more efficient and more valuable to Mongolian consumers.

As a result, we expect banks to begin offering more competitive loan rates.

Besides equipment, U.S. companies possess many agricultural technologies that could benefit Mongolia.

With the vast experience U.S. companies have in agriculture in Idaho, North Dakota, and other states with similar climates to Mongolia, U.S. companies have products and services that would increase yields in crops and livestock and help get those products to Mongolia’s regional markets.

Finally, there are intriguing opportunities that may arise from developing Mongolia’s meat export sector.

In spite of these many challenges, Mongolia has many competitive advantages – an immense amount of land, gigantic markets right next door, meat production is compatible with the local culture, a tradition of organic production, and a willing government and many international partners working together.

Moreover, we have learned that U.S. know-how helped transform the agriculture sector elsewhere in the region.

Less than ten years ago, Kazakhstan had a small, domestic-centered beef industry.

After a U.S. investment in the cattle sector, Kazakhstan has developed an internationally competitive beef sector.

There is no reason that Mongolia cannot also achieve that same distinction.

Working with our partners here in Mongolia and with interested U.S. private sector companies, I am confident we can help reach that goal – to the benefit of Mongolia and the United States.

At this point, I would like to turn the floor over to Ms. Enkhtsetseg from Mercy Corps, who will discuss Mercy Corps’ involvement in the agricultural sector and where it sees opportunities for U.S. exporters and investors.

I look forward to your questions. Thank you.