Camel Wool Can Weave Economic Resilience In Mongolia – Analysis

By Linda Tija and Guanie Lim

Since the early 1990s, Mongolia has transitioned from a Soviet-style planned economy to one embracing market forces and global economic cooperation. This shift has led to rapid growth, earning Mongolia the ‘wolf economy’ moniker, with the country’s vast natural resources driving export revenue and industrialisation. But this strategy is not foolproof as commodity price fluctuations naturally generate economic volatility. 

To minimise volatility, analysts recommend diversifying Mongolia’s natural resource-dependent economy. One promising avenue is to develop niche products and services with unique regional characteristics such as camel wool. The Mongolian government and international donors have devoted considerable effort in promoting these sectors to modernise and revitalise the country’s vast rural terrains.

Despite comprising a relatively small share of the country’s total exports, camel wool presents an appealing case for diversifying Mongolia’s exports and enhancing economic resilience. The rise of fashion brands prioritising eco-friendly practices and ethical production standards highlights the commodity’s potential, with surveys indicating that camel wool has become a popular raw material for apparel manufacturers in coastal China.

Camel wool offers a more sustainable alternative to cashmere, which is derived from goats. Goats tend to graze heavily on plants, leading to soil degradation and desertification, especially in Mongolia’s water-scarce steppes and deserts. Camels primarily feed on shrubs and hardy plants avoided by other livestock, which helps preserve the ecosystem.

But the outcome of developing a robust camel wool production network has been uneven at best. Research identifies several obstacles hindering camel wool’s effective integration into global markets and the socioeconomic advancement needed to capture additional value. One major issue is the limited linkages between camel herders with processors and manufacturers, with traders and middlemen arbitrating information flows. This situation impedes the exchange of knowledge and resources critical to spurring positive externalities.

International donors have sought to break this deadlock by organising matchmaking events for herder cooperatives and manufacturers. But bridging information asymmetry remains difficult because these networks are not simply about economic transactions. Many of these traders and middlemen enjoy decades-long relationships with herders and often share familial ties. Flexible financial arrangements are offered to camel herders within these privileged networks, indirectly hampering the prospects of less connected herders. 

The governance structure of the camel wool industry is also lacking. For example, some entrepreneurial minded herders have explored the potential of grooming and marketing baby camel wool. When combed rather than sheared, camel wool fibres can be as fine as cashmere. But such technical and marketing information has largely been disseminated by international donors, with limited coordination with relevant authorities. As a result, few herders have established a significant market presence in this highly niche and profitable product category. 

Processing efforts have also been hindered by logistical constraints. Although not considered technology intensive by contemporary standards, wool processing still requires functional processing facilities and public infrastructure. Mongolia’s vast terrain and sparse population add difficulty to establishing and maintaining factories — a challenge compounded by the erosion of previously state-owned infrastructure following post-1990s market reforms — leading to inconsistencies in processed wool quality. To hedge this risk, businesses prefer to directly export most washed and dehaired wool as semi-finished products. Almost all washed wool goes to China, while dehaired wool is further processed and sent to other markets. 

Demographic factors worsen this issue. Employing workers outside the main urban hubs has been challenging due to Mongolia’s urbanisation drive. In 2020, a total of 31.3 per cent of the population resided in rural areas, a reduction of more than 10 per cent from 2000. Although migration from rural to urban areas was banned between 2017 and 2020, this only prevented official residency registration, not the actual flow of people into cities. The younger generation generally prefer a more settled urban lifestyle with better job opportunities, living conditions and education.

Development through value chain integration is a highly context-dependent and place-specific process. Business firms naturally play a key part, but meaningful and far-reaching economic upgrading is unlikely without a conducive institutional milieu. Despite the adage that ‘geography is not destiny’, it would be naive to ignore locational factors when devising development programs. At the very least, a deeper understanding of these issues can prevent the misallocation of financial and technical resources in chasing unproductive leads. 

Another policy implication concerns the role of agriculture. Agrofood products are crucial for early-stage industrialisation in developing economies, leveraging existing comparative advantage. Agrofood also acts as a catalyst for related economic activities, such as logistics services. The premium on properly processed camel wool also highlights businesses’ growing concern about their role in mitigating climate change. Environmental sustainability is no longer a choice but a necessity to maintain a competitive edge in the global economy. 

About the authors:

• Linda Tjia is Associate Professor at the Department of Public and International Affairs, City University of Hong Kong.
• Guanie Lim is Associate Professor at the National Graduate Institute for Policy Studies, Japan.

Source: This article was published by East Asia Forum