The demand for cashmere is increasing in the world market offering a great opportunity to Mongolia, but the problem is that the country is now short of cashmere. Prices have doubled to MNT 40,000 per kilo in only a short while. National manufacturers have been taken by surprise and find that they do not have enough stock. They have begun importing from China cashmere that was originally produced in Mongolia. They are also making deals in Afghanistan.

Mongolia has 12 factories that process the cashmere and then manufacture garments. Some 50 others are engaged in some earlier stages of processing. Around 200 small factories import yarn from China, South Korea and Taiwan and make garments and other products. Given that in the 1990s Gobi was the only company in the sector, it may seem that the industry is blooming but the rise in numbers is misleading.

Gobi used to export USD20-30 million worth of products a year and contrbutedUSD17-25 million to the state budget. This amount has not increased over the years. With restricted access to capital, most of the big players use only 20-30 percent of their capacity.

According to G.Yondonsambuu, Director of the Mongolian Wool and Cashmere Union, Parliament’s decision to annul the MNT 4,000 export tax on cashmere is largely to blame for the situation as this has facilitated 60-65 percent of the total being taken to China.

Mongolians began cashmere production in 1976 after being trained by Japanese and with UN assistance. Now the main problem is the quality of the cashmere. Dirt is often added to add the weight and studies have found that Mongolian cashmere has become 1 micron thicker. This makes products less durable.

A Canadian who studied the industry concluded that global demand for Mongolian cashmere is still strong, but its reputation is gradually falling. Mongolia needs to create its own brand identity to succeed in the global market, he said.

Mongolia has the capacity to refine 3,000 tons. Final products from this can fetch USD 180-200 million. Mongolia exported more than 4,900 tons last year.