Upgrading Sustainable Wool and Cashmere Processing Plants
Upgrading Sustainable Wool and Cashmere Processing Plants
Business Model Description
Invest in upgrading B2B/B2C models of cashmere and wool processing chains, primarily focussed on spinning and knitting facilities in Mongolia to increase value-added end products and their exports. Examples of companies active in this space are:
Gobi JSC, established in 1981, is a vertically integrated cashmere and camel wool processor and garments manufacturer in Mongolia. It has received funding from EBRD, ADB and local commercial banks such as Khan Bank and Trade and Development Bank of Mongolia (TDBM). In 2021, USD 12 mn was invested in scaling up its production facilities. (12)
Khanbogd Cashmere was founded in 1998 and has been supplying dehaired cashmere for over 22 years, employing over 400 employees with an annual production capacity of 1000 tons of cashmere (100,000 pieces of knitwear). It distributes to England, Italy, China, German, India, Japan and Korea.
Goyol Cashmere, was established as a family micro-business in 2005 in the field of production and trade of wool and cashmere knitted products. The company has over 160 workers and a capacity to produce more than 60,000 knitted finished products per year. It expanded its operation with equipment from Japan's SHIMA SHEIKI and Italy's Complett brands. It is planning to uptake spinning plant.
Expected Impact
Support sustainable cashmere processing with a positive impact on herders' livelihood to increase exports and reduce pasture degradation.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Mongolia: Ulaanbaatar
- Mongolia: Bayankhongor
- Mongolia: Govi-Altai
- Mongolia: Uvurkhangai
- Mongolia: Umnugobi
Sector Classification
Food and Beverage
Development need
Mongolia faces a challenge in balancing economic growth and environmental sustainability. Agriculture, which contributes 13 percent to the GDP and employs 30 percent of the workforce, holds the potential for economic support. (1) However, inadequate agriculture and livestock practices result in land degradation and overuse of water, causing negative environmental impacts. (2)
Policy priority
Under the objective to create an export-oriented economy, Mongolia's long-term development plan - Vision 2050, (clause 3.8.1) states that promoting the processing industry and agriculture is one of the priority branches of the economy. (3)
Gender inequalities and marginalization issues
The agriculture sector in Mongolia is dominated by herders, female workers, and MSMEs. Women make up 90 percent of the workforce in the cashmere factories with 70 percent aged 25-40. (4) COVID-19 has had a significant impact on their livelihoods. (6)
Raw cashmere procurement and sustainable pasture practices are crucial for the income of herders and cooperatives, who rely on livestock and cashmere as key sources. (5)
Investment opportunities introduction
The agriculture sector is one of Mongolia’s oldest industries and has remained integral to the country’s long-term development strategy. There is great potential for exports of high-value-added industrial products, specifically livestock products. (7) Livestock products, including cashmere contribute 5 percent of the total exports in Mongolia. (8)
Key bottlenecks introduction
Oversized herds are damaging pastureland and water sources as they compete for dwindling quantities of falling quality forage. In turn, the quality of livestock products is decreasing, resulting in lower income for herders whose income is mostly dependent on the size of their herd. (9)
Food and Agriculture
Development need
The livestock sector, including cashmere, represents over 80 percent of Mongolia's agricultural output. Cashmere is a crucial commodity for herders' livelihood. COVID-19 caused a 50 percent drop in raw cashmere prices and a 70-80 percent decrease in sales due to cancelled export contracts. (10)
Policy priority
Under Vision 2050 clause 3.8.22, the Government aims to provide support for the cashmere sector and increase the export of value-added wool and dehaired cashmere products. (3)
Gender inequalities and marginalization issues
The wool and cashmere sector comprises about 100 textile industries, mostly micro and SMEs, providing over 20,000 jobs in the capital city. (4) In addition, raw wool and cashmere make up 70 percent of herder household's income. (9)
Due to COVID-19, the micro and small-medium sized enterprises in the wool and cashmere sector, mostly dominated by women, faced difficulties in terms of cash flow and reduced supply and demand, causing disruptions in the value chain. (5) This resulted in difficulties in paying rents and loans.
Investment opportunities introduction
With over 70 million livestock animals, Mongolia is the world’s second largest producer of cashmere wool. There has been a rise in demand for sustainable textiles, globally. According to a market study, the global sustainable fabrics market is expected to grow, accounting for ~USD 70 bn by 2030. (11) Cashmere production contributes ~5 percent of the Mongolian GDP.
Key bottlenecks introduction
Mongolian cashmere sector face various challenges due to growing competition from foreign processors and limited capacity for spinning. (2) Particularly, advancing spinning industry is necessary to increase the amount of finished products and improve product quality as the current capacity doesn't meet the required volume hence less value-added final products.
Agricultural Products
Pipeline Opportunity
Upgrading Sustainable Wool and Cashmere Processing Plants
Invest in upgrading B2B/B2C models of cashmere and wool processing chains, primarily focussed on spinning and knitting facilities in Mongolia to increase value-added end products and their exports. Examples of companies active in this space are:
Gobi JSC, established in 1981, is a vertically integrated cashmere and camel wool processor and garments manufacturer in Mongolia. It has received funding from EBRD, ADB and local commercial banks such as Khan Bank and Trade and Development Bank of Mongolia (TDBM). In 2021, USD 12 mn was invested in scaling up its production facilities. (12)
Khanbogd Cashmere was founded in 1998 and has been supplying dehaired cashmere for over 22 years, employing over 400 employees with an annual production capacity of 1000 tons of cashmere (100,000 pieces of knitwear). It distributes to England, Italy, China, German, India, Japan and Korea.
Goyol Cashmere, was established as a family micro-business in 2005 in the field of production and trade of wool and cashmere knitted products. The company has over 160 workers and a capacity to produce more than 60,000 knitted finished products per year. It expanded its operation with equipment from Japan's SHIMA SHEIKI and Italy's Complett brands. It is planning to uptake spinning plant.
Business Case
Market Size and Environment
USD 50 million - USD 100 million
10% - 15%
Mongolian cashmere producers supply roughly 10,000 tons of cashmere to the global market (40 percent). (13)
The cashmere industry contributes to 5 percent of Mongolia's GDP. The market has the potential to grow following the global demand for cashmere which is expected to reach USD 70 bn by 2030, with a CAGR of 12.5 percent between 2021-2030. (11) This is especially significant, given the volume of buyers from Europe, including Italy and the UK, who largely import from Mongolia. (13)
Indicative Return
20% - 25%
> 25%
According to the cashmere value chain study, the sales revenue of Mongolian cashmere production was 12-36 percent between 2015-2019. Due to Covid-19, it declined by 39 percent in 2020. (5)
Investment Timeframe
Long Term (10+ years)
Long terms investment is required according to the survey by Khanbogd Cashmere LLC.
Ticket Size
GOBI JSC reported that USD 12 mn (MNT 40 bn) was invested in scaling up production facilities in 2021. (12) Khanbogd Cashmere states that it needs USD 30-40 mn to establish the spinning factory. (14)
Market Risks & Scale Obstacles
Market - High Level of Competition
Business - Supply Chain Constraints
Market - Volatile
Impact Case
Sustainable Development Need
Enhancing Mongolia's cashmere processing capacity can help increase the country's export revenue and generate employment in this sector. Mongolia's Vision 2050 aims to diversify export products by increasing the proportion of processed agricultural and livestock products.
There is a need to increase agricultural value-added and processed products to improve pasture management in Mongolia. As of 2015, Mongolia's 77 percent of pasture land has been degraded. (15) Pasture degradation also threatens herders' livelihood since livestock and cashmere are their key income sources.
Gender & Marginalisation
Ensure increased participation of women and expansion of income within the sector. Women make up 90 percent of the total workforce, of which 70 percent are workers aged 25-40. (4) Average wages in cashmere processing factories are lower than the average salary in the processing industry. (5)
Procuring raw cashmere from herders and supporting sustainable pasture practices can help improve the livelihood of herders and cooperatives. It will also encourage young herders as the proportion of young herders has declined over time. (16)
Expected Development Outcome
Increase Mongolia's cashmere processing capacity to expand export earnings with increased value addition, thereby improving income for herders and cooperatives. The country supplies 40 percent (roughly 10,000 tons) of raw cashmere, yet only 12 percent of the market demand is for cashmere end products. (10)
Enhance management systems (i.e., ESG, sustainability management, and responsible production) among companies operating in the cashmere processing industry.
Gender & Marginalisation
Provision of green technology and facilities for cashmere processing to improve the female workforce's working conditions and livelihood of herders, as well as increased income/economic opportunities.
Promote sustainable pasture practices by procuring fibre from herder households to improve land management and animal welfare.
Primary SDGs addressed
8.1.1 Annual growth rate of real GDP per capita
Percentage of manufacturing industry within total GDP - 10.9 percent. (1)
Percentage of manufacturing industry within total GDP - 14.6 percent by 2030. (3)
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Outcome Risks
The traceability of raw materials is a big concern among buyers and consumers in the global market. Therefore, it is important to ensure transparent supply chains. Although Mongolian traditional harvesting of cashmere doesn't harm the goats, some critics still are concerned about animal welfare.
Overuse of chemical substances, water and energy in processing cashmere products is a big risk.
Gender inequality and/or marginalization risk: Gender-related problems (e.g wage gap) would occur. Occupational Safety and Health is also critical in cashmere production.
Impact Risks
Without addressing traceability, it will impact the sales of end-products. Most importantly, unsustainable pasture practices would increase pasture degradation. Non-compliance with animal welfare practices would impact the production and sales of products, and hence the branding.
Unsustainable production management would impact the production productivity and quality of cashmere products. Underdeveloped logistics and transportation would impact the implementation of cashmere processing and sales as well as cost.
Gender inequality and/or marginalization risk: Lack of addressing gender issues in the management policy would impact gender inequality. It is essential to offer a fair price to the herders.
Impact Classification
What
Strengthen the cashmere processing value chain to increase value-added end products and their exports.
Risk
Supply chain risks are a big concern including traceability - sourcing sustainable raw material, transport and logistics.
Contribution
The establishment of spinning factories will increase value-added cashmere products, exports as well as employment with increased capacity to process up to 6,000 tons of dehaired cashmere. (5)
Impact Thesis
Support sustainable cashmere processing with a positive impact on herders' livelihood to increase exports and reduce pasture degradation.
Enabling Environment
Policy Environment
Vision 2050 (clause 4.2.22) aims to provide support for the cashmere sector and increase the export of value-added wool and dehaired cashmere products. (3) Nationally Determined Contribution has measures to maintain livestock population at appropriate levels according to the pasture carrying capacity. (17)
To support the export of cashmere products, the "Cashmere" program was extended and approved via Resolution No. 47 of 2018 of the Government of Mongolia. (4)
Financial Environment
Financial incentives: Government and commercial banks issue loans for Cashmere producers and herders. These loans are provided to producers on preferential terms as part of Parliament Resolution (2011) "Measures to Support National Manufacturers and Increase the employment". (18)
Fiscal incentives: Clause 2.50 of the Government's Action Program for 2016-2020 states that "Long-term investment and flexible financial and credit policies will be implemented in the light, small and medium industries and cooperatives." (21)
Other incentives: According to Law on Investment, Non-tax incentives will be provided 12.1. to support the financing of innovative projects and to guarantee the financing to produce export-oriented innovation products. (22)
Regulatory Environment
Parliament Resolution No. 30 dated June 3, 2011, " Measures to Support National Manufacturers and Increase the employment": In order to support producers of livestock raw materials and increase employment, loans were provided to producers on preferential terms. (18)
In July 2021, Mongolia adopted standard MNS 6926 : 2021 Sustainable Textile Production – Code of Practice. (19) In March 2020, Mongolia adopted standard MNS 6891:2020 Responsible Nomads - Code of Practices for sustainable nomadic livestock. (20)
Relevant standards in the cashmere and textile processing sector include Mongolian Noble Fibre certification mark for high quality wool and cashmere products, ISO9001, STANDARD 100 - OEKO-TEX.
Marketplace Participants
Private Sector
Cashmere processing companies include GOBI JSC, Khanbogd LLC, and Goyol LLC Investors: Commercial banks (Khan Bank, XacBank, Golomt Bank etc) and multinational/international development banks - The European Bank for Reconstruction and Development, International Finance Corporation
Government
Ministry of Food, Agriculture and Light Industry (MOFALI)
Multilaterals
United Nations Development Programme (Mongolian Sustainable Cashmere Platform), Asian Development Bank, The European Bank for Reconstruction and Development
Non-Profit
Mongolian Wool and Cashmere Association (MWCA), National Pasture Group Association (NAPUG), Mongolian Sustainable Finance Association (MSFA)
Public-Private Partnership
Cashmere Committee under the Mongolian National Chamber of Commerce and Industry (MNCCI)
Target Locations
Mongolia: Ulaanbaatar
Mongolia: Bayankhongor
Mongolia: Govi-Altai
Mongolia: Uvurkhangai
Mongolia: Umnugobi
References
- (1) National Statistics Office of Mongolia (NSO). (2022). Gross Domestic Production. https://www.1212.mn/mn/statistic/statcate/573052/table-view/DT_NSO_0500_001V1
- (2) United Nations Development Programme (UNDP). (2022). Mongolian Sustainable Cashmere Platform. http://sustainablecashmereplatform.com
- (3) The Government of Mongolia. (2020). Vision 2050 - Mongolia's Long Term Development Plan. https://legalinfo.mn/mn/detail/15406
- (4) Ministry of Food, Agriculture and Light Industry (MOFALI). (2021). Mongolian Cashmere Processing Industry Overview– 2021. https://mofa.gov.mn/files/pdf-files/709gt2hxejp/63c11751ae1d370972285efc.pdf
- (5) United Nations Development Programme (UNDP) & National University of Mongolia (NUM). (2022). Current state and challenges of Mongolian cashmere value chain.
- (6) United Nations Development Programme (UNDP). (2020). Rapid Socio-Economic Impact Assessment of COVID-19 Prevention Measures on Vulnerable Groups and Value Chains in Mongolia. http://sustainablecashmereplatform.com/related-resources/
- (7) National Development Agency of Mongolia. (2021). Invest in Mongolia. Agribusiness https://investmongolia.gov.mn/agribusiness/
- (8) National Statistics Office of Mongolia (NSO). (2022). Export statistics. https://www.1212.mn/mn/statistic/statcate/573062/table-view/DT_NSO_1400_005V1
- (9) Agronomes et Vétérinaires Sans Frontières. (2020). AVSF Sustainable Cashmere Programme in Mongolia. https://www.switch-asia.eu/site/assets/files/2630/2020_avsf_scp-1.pdf
- (10) United Nations Development Programme (UNDP). (2020) Press Release. UNDP Mongolia facilitates multi stakeholder workshop to address the key challenges facing Mongolia’s cashmere industry post COVID-19. https://www.undp.org/mongolia/press-releases/undp-mongolia-facilitates-multi-stakeholder-workshop-address-key-challenges-facing-mongolia’s-cashmere-industry-post-covid-19
- (11) Market Research Future. (2022). Sustainable Fabrics Market https://www.marketresearchfuture.com/reports/sustainable-fabrics-market-7435
- (12) Gobi JSC. (2021). 2021 Annual report https://cdn.shopify.com/s/files/1/1953/2845/files/2021_ANNUAL_REPORT_compressed.pdf?v=1655779835
- (13) United Nations Development Programme (UNDP). (2021). Blog. Cashmere Initiatives Working Together to Improve the Value Chain. https://www.undp.org/mongolia/blog/cashmere-initiatives-working-together-improve-value-chain
- (14) Rapid capacity needs survey conducted by the Public Sector Consultant on Mongolia SDG Investor Map.
- (15) United Nations Convention to Combat Desertification (UNCCD). (2018). National Report on Voluntary Target Setting to Achieve Land Degradation Neutrality in Mongolia. https://www.unccd.int/sites/default/files/ldn_targets/2019-08/Mongolia%20LDN%20TSP%20Country%20Report.pdf
- (16) National Committee on Gender Equality. (2018). Gender policy in food, agriculture and light industry. https://mofa.gov.mn/exp/ckfinder/userfiles/files/2018a64.pdf
- (17) The Government of Mongolia. (2019). Nationally Determined Contribution. https://unfccc.int/sites/default/files/NDC/2022-06/First%20Submission%20of%20Mongolia%27s%20NDC.pdf
- (18) The Parliament of Mongolia. (2011). Measures to Support National Manufacturers and Increase the employment. https://legalinfo.mn/mn/detail/6989
- (19) Mongolian Agency for Standardization and Metrology (MASM). (2021). Mongolian National Standard. MNS 6926:2021 Textile Production – Code of Practice. https://cdn.greensoft.mn/uploads/users/2708/files/MNS%206926-2021%20Sustainable%20textile%20production%20standard.pdf
- (20) Mongolian Agency for Standardization and Metrology (MASM). (2020). Mongolian National Standard. MNS 6891:2020 for Responsible Nomads Code of Practices for sustainable nomadic livestock. https://estandard.gov.mn/standard/v/6714a
- (21) The Government of Mongolia. (2020). Five-Year Development Guidelines 2021-2025. https://legalinfo.mn/mn/detail/15584"
- (22) The Parliament of Mongolia. Law on Value-Added Tax (VAT). https://legalinfo.mn/mn/detail/11227