VZCZCXRO6586
RR RUEHLMC RUEHVK
DE RUEHUM #0177/01 1150819
ZNR UUUUU ZZH
R 240819Z APR 08
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC 2067
INFO RUEHBJ/AMEMBASSY BEIJING 6093
RUEHMO/AMEMBASSY MOSCOW 2186
RUEHKO/AMEMBASSY TOKYO 2969
RUEHUL/AMEMBASSY SEOUL 3291
RUEHJA/AMEMBASSY JAKARTA 0246
RUEHML/AMEMBASSY MANILA 1704
RUEHPF/AMEMBASSY PHNOM PENH 0089
RUEHGP/AMEMBASSY SINGAPORE 0407
RUEHVN/AMEMBASSY VIENTIANE 0060
RUEHGO/AMEMBASSY RANGOON 0033
RUEHKL/AMEMBASSY KUALA LUMPUR 0264
RUEHHI/AMEMBASSY HANOI 0121
RUEHBY/AMEMBASSY CANBERRA 0264
RUEHVK/AMCONSUL VLADIVOSTOK 0255
RUEKJCS/SECDEF WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC

UNCLAS SECTION 01 OF 02 ULAANBAATAR 000177 
 
SIPDIS 
 
SENSTIVIE 
 
SIPDIS 
 
STATE FOR EAP/CM, DRL AND EEB/TPP/ABT/ATP 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON PHUM ECON EAGR MG
SUBJECT: IN MONGOLIA, THOUSANDS DEMONSTRATE AGAINST HIGH FOOD 
PRICES 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION 
 
¶1. (SBU) SUMMARY: Sharply rising prices for staple foods prompted 
approximately 4,000 demonstrators to take to the streets April 18 in 
the heart of Mongolia's capital, Ulaanbaatar.  Led by the National 
Confederation of Mongolian Trade Unions, protestors demanded 40-50% 
price cuts for bread and flour and threatened a nationwide strike if 
the government failed to act.  At a meeting of the government's 
price stabilization program council on the April 21, producers and 
protesters argued over the best policy for reducing prices.  No 
decisions were made, although the Prime Minister promised to 
investigate the matter further. END SUMMARY 
 
¶2. (SBU) Witnesses estimated that 4,000 demonstrators converged on 
central Ulaanbaatar's Sukhbaatar Square on April 18 with banners 
that read, "Stop Inflated Food Prices!" and "Increase Working Class 
Salaries!" (Note: Wire agencies  incorrectly reported that over 
20,000 people took part in the demonstration.  End Note.)  The 
protest followed a series of price hikes for basic food items, 
including rice, flour, meat and bread. Bread prices had increased 
50% in the last week alone, and the price of flour has tripled over 
the past four months.  Demonstrators also called for wage increases, 
an improved legal environment to ensure fairer competition, and 
reform of the country's social security system. 
 
¶3. (SBU) S. Ganbaatar, President of the labor confederation, called 
on the government of Mongolia "to take concrete action to stop the 
rising consumer prices, which enrich a few companies at the expense 
of thousands of Mongolians."  Ganbaatar insisted that the 
demonstration was not politically motivated, but threatened that if 
price hikes were not dealt with soon, "the citizens will move to the 
next level of action," which could include a nationwide strike. 
 
¶4. (SBU) Later, and without resistance, Ganbaatar led a delegation 
of protestors into Government House, where  they were eventually 
received by Prime Minister Bayar and Finance Minister Ulaan.  The 
protestors handed over a list of demands that included stabilizing 
flour and bread prices.  Flour currently costs 1000 tugrik per kilo 
(US$.85 cents), and the protestors want this price reduced to 
between 550 to 600 tugrik (roughly US$.51 cents) per kilo.  Bread 
currently sells for  800 tugrik per loaf (US$.70 cents), and the 
protestors want this price sliced to 450-500 tugrik (roughly US$.42 
cents). 
 
¶5. (SBU) Bayar then invited representatives of the confederation and 
the Mongolian Employers Federation (MONEF) to Monday's meeting of 
the "Council on Coordinating Implementation of the Price 
Stabilization Program."  (Note: This is an advisory group that deals 
with inflation.  It was  established earlier this year and includes 
representatives from Government and the private sector.  End Note.) 
At the council meeting on April 21, emotions flared and Ganbaatar 
accused bakers of gouging customers through 25 to 30% profit 
margins.  He suggested that producers should accept a 3 to 4% margin 
of profit, to bring prices down to 450 tugrik per loaf.  Bakers and 
millers rejected this proposal out of hand, saying they could not 
operate under such conditions and would shut down.  Local producers 
instead argued that high VAT and other taxes should be reduced or 
eliminated.  According to press reports, little was resolved at the 
meeting, with PM Bayar simply agreeing to investigate the matter 
further. 
 
¶6. (SBU) According the World Bank, Mongolians spend 41% of their 
income on food.  Price increases have been devastating for poorer 
consumers, with the urban poor bearing most of the shock.  Some 32% 
of Mongolia's population lives below the poverty line.  More than 
two-thirds of Mongolia's 17% inflation rate in 2007 was attributed 
to increased food prices.  Some of the protestors blame the current 
situation on the collapse of the Soviet-era farming system.  They 
 
ULAANBAATA 00000177  002 OF 002 
 
 
nostalgically recall that Mongolia was self-sufficient in wheat 
grain when Mongolia was a satellite of the Soviet Union.  Harking 
back to those halcyon days, the Minister of Food and Agriculture 
rolled out a "Crop Rehabilitation Third National Mobilization" plan, 
to restore self-sufficiency in wheat/flour and vegetable production 
by 2010.  But for now, Mongolia is heavily dependent on imports for 
most non-meat foods, with bread and cereals arriving from Russia and 
fruits and vegetables coming from China.  This situation leaves the 
country vulnerable to worldwide food price increases. 
 
COMMENT 
-------- 
 
¶7. (SBU) Regarding the "grand illusion" of Mongolia's Soviet-era 
farms, others recall that the USSR underwrote the entire farm 
sector, paying for almost all inputs.  The sector produced cheap 
bread and other staples because the Mongolians bore none of the 
costs.  The collapse of the Soviet Union brought an abrupt end to 
this heavily subsidized system.  The GOM, faced with a farm system 
it could no longer afford, privatized most state-owned collective 
farms, most of which collapsed because they could not economically 
produce wheat and other crops without subsidies.  This inability to 
profitably produce crops continues, which necessitates expensive 
imports, and threatens any plan to renovate the agricultural sector. 
 
 
GOLDBECK