Safeguarding Pastures, Increasing Dairy Income for Mongolian Herders

It may be easily assumed that animal-originated products, such as milk, must be abundantly available for the local population but such is not the case. Mongolia often needs to import powdered milk to meet the urban demand for some parts of the year.

Why is there insufficient milk supply for domestic use?

First, milk production from traditional herding is highly seasonal. Approximately 70% of the raw milk supplied by herders is collected and sold during the four warmer months of June–September^[1], while the remaining 30% are allotted for the rest of the year. Consequently, summer months see an oversupply of milk while the other months face significant shortage.

Second, Mongolia’s expansive territory makes the collection and transport of milk challenging. In 2018, 892 million liters of raw cow and sheep milk were produced, of which only 10% was processed through dairy factories. Most demand is concentrated in capital city Ulaanbaatar, where around 86% of processing capacity is located,^[2] but collection points of perishable raw milk are far from the city center. Herders lose potential income and livelihood opportunities because of supply chain challenges and the lack of nearby processing facilities.

A recent study by the Asian Development Bank indicates that developing modern milk production based on inclusive contractual arrangements has the potential to address seasonal fluctuations in milk supply, while alleviating the overgrazing problem and supporting the livelihood of herder households at the same time.

As part of the private sector-led Inclusive Dairy Value Chain Investment Project, which was implemented from 2019 to 2023, ADB supported the Mongolian dairy processor, Milko Limited Liability Company, in expanding the collection of raw milk from herder households in six soums (sub-provinces) in three aimags (provinces) of Mongolia. With this project support, collection points were installed in soum centers located as far as over 400 kilometers from Ulaanbaatar, where Milko's processing plant is located. Each collection point was strategically identified to gather raw milk from around 200 herder households located within a radius of around 70 kilometers. Once sufficient milk is collected, it is transported to the processing facility in Ulaanbaatar by a larger truck. This system ensures that the raw milk can reach the processing facility in less than 24 hours after milking during the peak milk production months.

The impact study reveals that herder households supplying raw milk to Milko could increase their inflation-adjusted household income by 3.6% per year, compared to 2.6% of the comparison group or non-supplying herders, while controlling for other factors. Despite having smaller herd sizes, milk supplier households earn 20% more in monthly income than non-suppliers on average.

The Milko-type supply chain enables herders to sell milk and improve their livelihood while still engaging in traditional livestock herding. This helps reduce grazing pressure on grasslands as they can earn more from milk production even with a small number of livestock units. When herders have the opportunity to earn income from milk sales, they take full advantage of it. They often move closer to the collection route, diligently protect their milk from spoiling, and aim for maximum milk output by any means possible.

Herders can supply milk to dairy processors only if they have access to collection points. Collection by Milko and other large dairy processors is feasible only if there are paved roads that allow for fast and efficient transport. Other factors, such as availability of sufficient milk resources and electricity, also influence this decision. To facilitate milk collection, improvements in road infrastructure, electricity supply, herd structure, and breed quality are needed. These can be encouraged through targeted government policies.

For households that do not supply milk or whose earnings from the sale of milk is negligible, their primary income sources are live animals, meat, and cashmere.

Assuming constant prices, herders can logically increase their income only by increasing their herd size. This is possible since in Mongolia, pastureland is publicly owned and there are virtually no incentives to limit herd size increases. Pasture usage is based on customary rights, with no clearly defined boundaries. The taxes on animal headcount are relatively small and not strictly enforced, which leads to a problem of the tragedy of commons. Herders aim to increase their herd sizes despite realizing that this will ultimately result in pasture degradation.

Herders are already experiencing the consequences of this degradation. According to a World Bank report, the average slaughter weight of sheep and goats declined by 11%, while that of cattle has dropped 4% since 1990. As a consequence of declining productivity, Mongolian herders find themselves in a vicious cycle: they maintain larger herd sizes to boost their income, which further exacerbates pasture degradation and productivity decline.

Increasing or enforcing regulations on animal headcount is not a straightforward decision due to the political influence of herders. Additionally, transitioning to more intensive dairy farming requires careful consideration, as it implies a cultural shift from traditional herding. This transition necessitates significant investments and the creation of new socio-economic clusters that come with different risks and requirements.

^[1] Food and Agriculture Organization and National Statistics Office of Mongolia. Report on the Pilot Survey on Livestock Product and Value-Added Estimation. 2024.

^[2] Interview with Otgonjargal Damiran, an official of the Mongolia Ministry of Food, Agriculture, and Light Industry (MOFALI). 2024.

Asian Development Bank. Mongolia: Gender Inclusive Dairy Value Chain Project.

ADB. 2019. ADB, Mongolia's Milko Sign Deal to Expand Dairy Operations and Improve Rural Livelihoods. News Release. 2 December.

E. Gunchinsuren and C. Abeleda. 2023. Measuring the Impact of a Dairy Value Chain Project in Mongolia: A Baseline Study. Asian Development Bank.

Ministry of Food and Agriculture and Swiss Agency for Development and Cooperation. 2015. National Report on the Rangeland Health of Mongolia.

World Bank. 2024. Mongolia Country Climate and Development Report.