VZCZCXRO3730
RR RUEHLMC RUEHVK
DE RUEHUM #0205/01 1230757
ZNR UUUUU ZZH
R 020757Z MAY 08
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC 2123
INFO RUEHBJ/AMEMBASSY BEIJING 6129
RUEHUL/AMEMBASSY SEOUL 3326
RUEHKO/AMEMBASSY TOKYO 3002
RUEHMO/AMEMBASSY MOSCOW 2219
RUEHGP/AMEMBASSY SINGAPORE 0414
RUEHML/AMEMBASSY MANILA 1728
RUEHBK/AMEMBASSY BANGKOK 1787
RUEHVK/AMCONSUL VLADIVOSTOK 0270
RUEHSH/AMCONSUL SHENYANG 0505
RUEHDBU/AMEMBASSY DUSHANBE
RUEHNT/AMEMBASSY TASHKENT 0059
RUEHAH/AMEMBASSY ASHGABAT 0055
RUEHEK/AMEMBASSY BISHKEK 0097
RUEHTA/AMEMBASSY ASTANA 0015
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 10 ULAANBAATAR 000205 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR EAP/EX, A/OPR/ALS, A/HR/OE/CM 
STATE PASS PEACE CORPS, USTR, OPIC AND EXIMBANK 
USDA FOR N. SAKHLEH 
BEIJING FOR AGATT 
USAID FOR DEIDRA WINSTON 
BANGKOK AND MANILA FOR USAID 
TREASURY FOR T.T. YANG 
COMMERCE FOR ZGCROSS 
 
E.O. 12958: N/A 
TAGS: EAGR PGOV SOCI EAID ETRD ECON PREL MG
SUBJECT: IMPACT OF RISING FOOD/AGRICULTURAL COMMODITY 
PRICES ON MONGOLIA 
 
Ref: STATE 39410 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION 
 
¶1. (SBU) 1. SUMMARY: Prices of Mongolia's chief staples have risen 
more than 33% over the last year, with flour spiking nearly 45% 
year-on-year.  As most of these staples are imported, Mongolia has 
suffered from inflation related to rising energy and related 
transport costs.  Other factors exacerbating the situation include 
severe weather, internal distribution bottlenecks, the dollar's 
depreciation, and the Chinese Yuan's appreciation.  Public 
discontent, especially from the urban and rural poor, has bubbled to 
the surface but not turned violent.  A recent demonstration drew 
nearly 4,000 citizens, who demanded that the government take 
immediate action to lower costs of flour and other staples.  The GOM 
has responded by setting up a Price Council to consider ways to 
lower prices on key foodstuffs; this  may involve subsidies, price 
fixing and strategic reserves of key commodities.  In addition, the 
GOM has proposed a US$400 million program to rehabilitate farmland 
and enhance farming methods.  However, funds for both schemes are 
limited, and in the case of the farm program, the results are 
months, if not years away.  END SUMMARY. 
 
¶2. (U) List of past reporting cables on food prices and related 
topics: 
 
-- 2008: 
Ulaanbaatar 177: IN MONGOLIA, THOUSANDS DEMONSTRATE AGAINST HIGH 
FOOD PRICES 
 
Ulaanbaatar 129:  LIVESTOCK FORAGE PREDICTION IN MONGOLIA 
TRANSFORMED THANKS TO USG ASSISTANCE 
 
Ulaanbaatar 116: IMF: 17% INFLATION THREATENS MONGOLIA'S ECONOMIC 
STABILITY 
 
Ulaanbaatar 115: MONGOLIA PLANS AMBITIOUS AGRICULTURAL EXPANSION, AS 
FOOD PRICES CLIMB 
 
-- 2007: 
Ulaanbaatar 686: MONGOLIA EXPERIENCES HIGHEST INFLATION IN OVER A 
DECADE 
 
Ulaanbaatar 679: MONGOLIANS BELIEVE CLIMATE CHANGE WREAKS HAVOC ON 
MONGOLIA 
Ulaanbaatar 475: MONGOLIA'S RAILROAD WOES: CONSTRUCTION, OTHER 
MATERIALS STACK UP AT CHINESE BORDER FOR LACK OF LOCOMOTIVES, RAIL 
CARS 
DEMAND 
------ 
¶3. (U) What are the most important, essential foods/agricultural 
commodities consumed in host country? 
 
-- The Ministry of Food and Agriculture of Mongolia (MoFA) considers 
wheat and flour, dairy products, and meat as strategic food staple 
items.  UN surveys of household incomes and expenditures find that 
these three product categories make up some 86% of a Mongolian's 
daily caloric intake. 
¶4. (U) How have prices changed with regard to these 
 
ULAANBAATA 00000205  002 OF 010 
 
 
foods/commodities? 
 
-- According to GOM (Government of Mongolia) figures, the average 
price of bread, flour and cereals in March 2008 rose 45.8% 
year-on-year (y-o-y); meat and meat products (mostly of domestic 
origin) rose 27.9%; and vegetables (most imported from China) rose 
26.3%.  Overall, prices for food and non-alcoholic beverages rose 
33.3% over the past year (16% since January 1).  The price of a 
55-pound bag of flour had risen to $21.40 from $7.70 four months 
earlier. 
 
¶5. (U) Is host country a net importer or exporter of those 
commodities? 
 
-- Mongolia imports 70% of its wheat from Russia, mostly from 
western Siberia.  The quality of these imports is generally poor, 
often categorized in Russia as unfit for human consumption. 20% 
comes from Kazakhstan, 9% from China.  United States is donating 
25,000mt in 2008. 
 
-- 98% of Mongolia's imported rice comes from China. Mongolia 
imported US$1.9 million worth of rice in the first three months of 
¶2008. 
 
-- Although Mongolia produces 350 to 400 million liters of milk per 
year, all of which is consumed locally, only 5% of this milk is 
processed through pasteurization.  Milk is produced in Mongolia on a 
seasonal basis, with most of annual production occurring in June, 
July and August; production is promptly consumed for lack of 
refrigeration. Poor infrastructure - including an absence of proper 
storage facilities, and inefficient distribution networks -- creates 
milk shortages in big markets (the main cities).  These shortages 
have to be offset by importers, which bring in around 20 million 
liters of milk and milk products annually (largely in dry-milk form, 
which is reconstituted in-country, or long-life UHT milk.) 
 
-- The country exports 5% of its domestically produced meat (some 
90% of it beef) to Russia, Saudi Arabia and Japan. Meat to Russia is 
in the form of unprocessed carcasses; Saudi Arabia, in the form of 
lamb; and Japan, in the form of horsemeat and pet food. 
 
-- Mongolia is self-sufficient in meat, and therefore  imports few 
meat products, except for some pork, mainly for sausage production; 
some poultry, fish, eggs (30-40% of total egg market); and some 
vegetables, principally during the winter months. 
¶6. (U) What percentage of domestic consumption is satisfied by 
domestic production? 
 
-- According to GOM estimates for 2007, total demand for wheat 
reached 298,468mt, of which only 121,200 mt (40%) was met by 
domestic producers.  Mongolia expects to import 91,071.43 mt, mostly 
from Russia, leaving a supply deficit of 27% or 81,715.32 mt. 
However, it is important to note that at least half of wheat demand 
goes for alcohol production (mostly vodka), rather than for direct 
human consumption. 
 
-- Mongolia's meat demand is primarily for beef and mutton and is 
fully met by domestic producers.  Mongolia's poultry meat industry 
is modest, although it produces between 60-70% of its own egg 
 
ULAANBAATA 00000205  003 OF 010 
 
 
supplies. 
 
 -- The country mills only about 30% of its flour supply. Although 
Mongolia is capable of supplying 100% of local flour demand through 
domestic millers, the shortage of wheat -- and the lack of storage 
facilities - keep producers from running their mills at full 
capacity. 
 
-- Mongolian producers supply 80% of potato market and 30-40% of 
vegetables, primarily cabbage, carrots, cucumbers, and onions. 
¶7. (U) Have there been shifts in consumption towards alternative 
commodities? 
 
-- The government considers rice and potatoes as alternatives to 
flour.  Potatoes are grown domestically, and Mongolia supplies about 
80% of total demand for potatoes locally.  But GOM statistics show 
that imports of potatoes since January are down nearly 50% over 
figures from the same period last year, mainly because of soaring 
prices for imported potatoes, suggesting that domestic suppliers are 
currently filling 90% of local demand.  There is no indication, 
however, that users of flour have turned to potatoes because of 
rising flour prices. 
 
-- The situation with rice may become problematic because nearly 
100% of Mongolia's rice imports are from China.  MoFA officials 
expressed concern, based on statements from counterparts at the 
Chinese Embassy in Ulaanbaatar, that China might act to ban rice 
exports in the future. (Note: Post has not been able to confirm this 
statement. End Note.) 
¶8. (U) What are the differences in the impact of rising food prices 
on different groups (e.g., rich vs. poor, urban vs. rural, ethnic 
groups), on different regions? 
 
-- Food price increases are hitting poorer consumers harder, and 
among these, the rural and urban poor bear most of the shock.  World 
Bank surveys show that poor, rural households devote the highest 
share of their consumption basket to food (58 percent), while the 
urban poor dedicate 46 percent of their income to food products. 
Non-poor households devote 35 percent of incomes to food. 
 
-- Since the beginning of the year, price increases for food have 
been steepest in the southwestern part of the country (Bayankhongor 
and Ovorkhangai provinces, at 35% and 25%, respectively). 
Ulaanbaatar's inflation rate for food items hit 16% in January, 
which is close to the national average. 
¶9. How have rising incomes affected consumption patterns? 
 
-- There is no information available yet, anecdotal or otherwise, 
that shows any noteworthy change in consumption patterns. 
 
Supply 
------ 
 
¶10. (U) Is there evidence that domestic agricultural production is 
responding to changes in prices? 
 
-- Recent price rises have sensitized the GOM to food security 
concerns (see Ulaanbaatar 115); and so, it wants to increase wheat 
and vegetable production to become self-sufficient by 2010.  It 
 
ULAANBAATA 00000205  004 OF 010 
 
 
wants to reduce import dependence, especially on Russia and on food 
donations.  It wants to extend loans to farmers for technology, 
seeds, and equipment, to increase yields. 
¶11. (U) Has there been an increase in investment, domestic or 
foreign, in food production? 
 
-- The government is working with commercial banks to support 
investments in the crop farming sector by subsidizing part of the 
loan interest.  This will allow farmers to receive loans at almost 
half of the current commercial-loan interest rate.   The GOM has 
strongly encouraged private banks to immediately offer at least 
US$50 million in loans to the Mongolian farmers.  (Note: American 
managers of two of Mongolia's largest banks have refused to pump 
cash into a sector that they argue is not economically viable. End 
Note.) 
 
-- In March, the Minister of Food and Agriculture rolled out the 
GOM's "Crop Rehabilitation Third National Mobilization" (CRTNM) to 
restore self-sufficiency in wheat/flour and vegetable production by 
¶2010.  The CRTNM calls for investment of about US$413 million over 
three years, starting this year.  The agricultural sector, long 
dominated by the state (either directly or indirectly), has 
attracted little investment from the GOM's budget or the private 
sector in recent years; the price rises do not seem to have 
encouraged investment into the current system. 
¶12. (U) Is there an increase/decrease in land used in food 
production? 
 
-- In fall 2007, domestic wheat production declined due to drought 
in the agriculture-intensive provinces of Khentii, Selenge, and Tuv. 
 This reduced supply and put further upward pressure on prices. 
 
-- There is no indication that land under recent cultivation has 
either decreased or increased in response to price fluctuations. 
However, food price increases have motivated the government to 
propose the Crop Rehabilitation Campaign (CRC) to increase crop 
production by restoring and using old, abandoned crop lands. 
¶13. (U) Have higher input costs affected food production and prices? 
 
 
-- MoFA believes that higher fuel-driven transport costs for bread 
and cereal products imported primarily from Russia have contributed 
to at least 3.3% of the 16% inflation since September 2007.  MoFA 
infers the same general effect for all food imports. 
 
-- Costs involved in transporting livestock from the field to the 
city have contributed at least 3% to cost increases.  In particular, 
the increase in the price of domestically-produced meat accounted 
for more than 3% of the observed 27% jump from last year.  (The rest 
is attributed to speculators and distribution bottlenecks.) 
 
-- Overall, because Mongolia's agricultural sector has been too 
cash-starved to use many modern inputs in its production, recent 
price increases have not impacted production or prices. 
¶14. (U) Are there changes in food inventories/stocks? 
 
-- The GOM has developed a plan to create reserves of 15,000mt of 
flour and 100,000mt of wheat this year.  However, the GOM has not 
funded the proposal, saying no money is available at this time. 
 
ULAANBAATA 00000205  005 OF 010 
 
 
¶15. (U) Are shortages of storage or food processing facilities 
contributing to crop losses? 
-- MoFA officials state that inadequate storage capacities do not 
allow efficient use of the crops grown.  This year, the government 
approved building or restoring 190 storage facilities across the 
country. 
¶16. (U) Are there other bottlenecks in supply chains? 
 
-- Over the past year, Mongolia has experienced tremendous 
bottlenecks for goods and supplies coming in on the sole 
single-track rail line from China.  Part of the blame lies with an 
ambitious housing scheme and construction boom that has reduced 
tariffs on imported construction materials, spurring sharp increases 
in imports of these materials (at the expense of other imports).  In 
addition, Mongolia's aging, under-invested railway system cannot 
keep pace with transport demands.  These weaknesses have affected 
the importation of other products, including food items, 
contributing, in turn, to price hikes.  (Note:  Efficiency 
improvements are the central objective of the $185 million 
Millennium Challenge Account (MCA) railroad project, but work and 
the flow of funds will begin only later this year; it will not have 
much impact on this problem in the near term.  The total MCA 
expenditure will total roughly $285 million.  End Note.) 
 
-- For meat products, 100% supplied by domestic producers, a 
gray-market system for transporting meat to market has allowed 
middle-men, aka "changers," to artificially drive up prices by 
hording meat or slowing delivery. 
¶17. (U) What is the effect on exports and/or capacity to supply food 
assistance? 
 
-- Mongolia is not an exporter of food/agricultural commodities or a 
supplier of food assistance. 
¶18. (U) Has there been a shift in production between food and 
non-food commodities, or an increase in the use of food crops for 
non-food purposes (such as fuels)? 
 
-- MoFA is looking for possibilities in biofuel production. However, 
Mongolia completely lacks the technical, legal, regulatory and 
financial infrastructure to actualize such grandiose ambitions. 
¶19. (U) Are there other factors affecting supply, such as weather or 
government policies? 
 
-- Weather remains a limiting factor.  Mongolia has long winters and 
dry springs, while summers -- although relatively wet -- are too 
short for many crops.  Droughts that damage crops and kill livestock 
are common, as are harsh, livestock-killing winters.  In 2007, 
drought in Khentii, Selenge, and Tuv provinces caused 2007 domestic 
wheat production to decline, reducing supply and placing further 
upward pressure on prices. 
 
-- Herders' growing preference for raising more profitable 
cashmere-producing goats exacerbated stress on pasturelands; alleged 
price-fixing among grey-market meat suppliers; and a rise in demand 
as net income increases. 
 
POLITICAL IMPACT 
---------------- 
 
 
ULAANBAATA 00000205  006 OF 010 
 
 
¶20. (SBU) Have there been public protests or violence? 
 
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.  (Note: Press reports of 20,000 
demonstrators were inaccurate.  End Note.)  Protestors demanded 
price cuts of 40-50% for bread and flour, and threatened a 
nationwide strike if the government failed to act.  Since April 18, 
no other protests or actions have occurred. 
¶21. (SBU) What is the effect on the stability of host government? 
 
-- A recent survey found that "inflation on goods" ranked third on a 
list of voter concerns, behind unemployment and corruption.  The 
issue was not among the top concerns six months ago.  So far, there 
is no indication that current price rises translate into government 
instability, and it is unclear how they will affect nationwide 
Parliamentary elections on June 29.  (Comment: Populist candidates 
may attempt to use price increases to attack their opponents in the 
upcoming election, accusing the ruling coalition of not doing enough 
to limit price increases for staples and fuel. End Comment.) 
¶22. (SBU) Has there been an impact on friction between classes, 
ethnic groups or urban/rural populations? 
-- While no ethnic friction has occurred, food price increases will 
surely hurt the urban and rural poor.  As a result, one may see 
increasing disparities between the poor and non-poor, if food prices 
continue to rise.  Many of those running for office or currently in 
power come from privileged backgrounds.  These elites drive luxury 
SUVs and wear fancy clothes and jewelry.  Even before recent price 
increases, Mongolians talked about a widening income gap.  If 
current price trends continue, poor voters may grow increasingly 
resentful of the rich urban and wealthier rural classes, for having 
so much when they can barely afford staples. 
¶23. (SBU) Has there been any impact on public attitudes toward 
agricultural biotechnology and/or biofuels? 
 
-- The Ministry of Food and Agriculture has told us that they 
support the use of Genetically Modified Organisms (GMO) as a 
possible solution to increased food costs and concerns over food 
security, but it says the public is opposed.  There are currently no 
regulations in place, and MOFA does not know how to commercialize 
products under research. 
 
ECONOMIC IMPACT 
--------------- 
 
¶24. (SBU) How significant has the rise in food prices been in its 
impact on inflation, balance of payments, trade balance, the fiscal 
situation or any other important economic indicator? 
 
-- According to the GOM, food items constitute 41% of Mongolia's 
Consumer Price Index (CPI) consumption basket. In 2007, price hikes 
for food accounted for 70% of total inflation.  The 15.1% inflation 
rate, which Mongolia experienced in 2007, was the highest in a 
decade, and mostly driven by food items. 
 
-- Global inflation and the Tugruk's depreciation against the 
Chinese Yuan (CNY) have driven prices for all imported foods higher. 
 (Note: The IMF recently classified the Tugruk's de facto peg to the 
U.S. dollar as the major reason for the depreciation. End Note.) 
 
ULAANBAATA 00000205  007 OF 010 
 
 
Since March 2007, the Tugruk lost 10.5% of its value against the 
CNY.  A continued appreciation of the Chinese Yuan will push 
Mongolian prices up further.   For reference, as of May 1, the USG's 
official rate was $1=Tugruk 1170. 
 
-- However, Mongolia's exports of copper, molybdenum, fluorspar, 
skins, cashmere, and gold have generated a positive balance of 
trade, balancing out some the effects of a declining dollar. 
¶25. (SBU) How might this affect private-sector development and 
medium-term economic growth prospects? 
 
-- Mongolia's economy grew 9.9% in 2007, thanks to impressive gains 
in the service, agricultural, banking and construction sectors. 
This growth has so far managed to outpace the impact of these price 
hikes. 
¶26. (SBU) Approximately how many poor households are net food 
consumers that would be impoverished by the food price rises, and 
approximately how many are net producers and could benefit? 
 
-- The impact of food price increases is harder on poor consumers, 
and among them, the urban poor bear most of the brunt.  Household 
surveys undertaken for the World Bank's Poverty Assessment in 
Mongolia show that 28% of all households in Mongolia are rural 
agricultural producers, from which one might infer that 62% of the 
population will be affected by food price increases.  However, as 
urban and most rural dwellers, rich and poor alike, must use 
imported grains and other imported, processed staples, all will be 
affected to some degree by price increases. (Note: Embassy Locally 
Employed Staff have expressed concern about rising food costs, which 
they note have increased about 20-25% over the past several months, 
coupled with static incomes in the absence of a salary increase.  We 
have already lost a few key employees recently for these reasons. 
End Note.) 
 
ENVIRONMENTAL IMPACT 
-------------------- 
¶27. (SBU) Have rising prices had an impact on issues such as 
deforestation, water availability and quality, soil conservation, 
etc.? 
 
-- MoFA's "Third Crop Rehabilitation Campaign" national program is 
confined to rehabilitating old crop fields and currently does not 
include plowing new lands, which could result in ecological damage 
to the environment. Environmentalists had threatened to oppose the 
measure unless this proviso was included.  The plan also focuses on 
re-cultivating abandoned farmland, which could help hold back 
desertification. 
 
-- Besides increasing livestock production, pig and poultry farming 
is growing and being supported to meet the demands for meat.  This 
could lead to an exacerbation of overgrazing and result in increased 
water use, which is contributing to desertification. 
 
GOVERNMENT POLICY RESPONSE 
-------------------------- 
 
¶28. (SBU) Has host government made changes in tariffs, quotas or 
other import restrictions? 
 
 
ULAANBAATA 00000205  008 OF 010 
 
 
-- The GOM has proposed a price stabilization program and set up a 
Price Council.  This Council is chaired by the Finance Minister and 
consists of the Tax office, various line Ministries, Customs 
Authority, the Bank of Mongolia, the Unfair Competition Agency, 
Consumer associations, the Minerals and Petroleum Authority, 
Employer's federation, Federation of Trade unions and Police.  The 
Council is expected to closely monitor inflation and analyze its 
impact; submit a proposal to exempt wheat imports from VAT and 
customs taxes; re-negotiate the imported oil price with the Russian 
oil company as well as seek alternative oil sources in the Middle 
East; conduct financial audits of petrol importing companies; and 
continue to subsidize domestic wheat producing farms.  So far, 
however, the Council has not acted on any of the new proposals. 
 
-- In connection with the flour price increase and shortage of 
wheat, the Mongolian Government struck an agreement with Russia on 
buying 100,000mt wheat with zero Russian export tax, and zero 
Mongolian import tax and VAT.  This measure is expected to reduce 
flour price from US$0.89 down to US$0.65 per 1 kg. 
 
-- On December 30, 2007, Parliament amended the VAT Law, exempting 
wheat imports and 40,000mt of flour for the period of January 1, 
2008 to July 1, 2008 from the tax.  The Parliament also exempted 
imports of wheat and 40,000mt of flour from Customs tax from January 
1 until July 1, 2008. 
¶29. (SBU) Have there been export restrictions? 
 
-- No restrictions are in place, because Mongolia exports little in 
the way of agricultural food products.  Major agricultural exports 
are cashmere and wool, for which certain export taxes apply (but no 
export restrictions). 
¶30. (SBU) Have there been nationalizations and/or redistributions of 
private farms or industries? 
 -- No. 
 
¶31. (SBU) Are there changes in policies on food assistance? 
 
-- Mongolia is not a food donor country. 
 
-- As a recipient of food aid -- for instance, USDA-funded 416B 
wheat, French wheat, Korean rice, etc. -- Mongolia continues to 
welcome such aid. 
¶32. (SBU) How are Central Banks reacting to food-price-driven 
inflationary pressures? 
 
-- As noted early, the IMF re-classified Mongolia's exchange rate 
arrangement as a conventional peg, which acknowledges the de facto 
peg of the Mongolian Tugruk to the US dollar.  This has limited the 
flexibility of the central bank, the Bank of Mongolia (BOM), to 
combat inflation on imported food goods as the Tugruk depreciates 
against world currencies in sync with the dollar.  Consequently, the 
Tugruk has lost 10.5% of its value against the CNY since March 2007, 
making Chinese vegetables, fruit, and rice imports more expensive. 
¶33. (U) What about price subsidies, cash transfers and other 
assistance to the population? 
-- The government is pushing commercial banks to support investments 
in the crop farming sector by subsidizing part of the loan interest, 
a call which the main commercial banks seem to have rejected. 
-- There has been talk by the GOM of offering life-line subsidies, 
 
ULAANBAATA 00000205  009 OF 010 
 
 
low-cost, or even free flour to populations affected by extreme 
poverty, especially pensioners on limited incomes, but nothing has 
been formally presented, let alone approved. 
 
¶34. (U) Are there policy efforts to promote food production? 
 
-- The Government designated 2008 as the Year of Food Supply and 
Food Safety.  Also, the government has launched a Third Crop 
Rehabilitation Campaign. 
 
¶35. (U) Are there changes in trade, environment, biotech, SPS or 
other policies? 
 
-- MoFA is looking for possibilities in bio-fuel production. 
However, at the moment, Mongolia lacks the technical, legal, 
regulatory, and financial capacity to implement any plans in this 
area. 
 
¶36. (SBU) Is there any impact on relations with other countries? 
-- Countries willing to help Mongolia secure its food supply at a 
reasonable price would likely find Mongolia reasonably supportive of 
that country's efforts in other fields of endeavor, and possibly in 
international fora.  As Russia and China are the best positioned to 
assist Mongolia with food-supply concerns, they may derive the 
lion's share of gratitude from Mongolia -- if they are accommodating 
with their exports of wheat/flour and rice, respectively.  There is 
a risk, should China ban rice exports, that long-standing prejudices 
against Chinese could flare-up. 
 
IMPACT ON POST PROGRAMS 
----------------------- 
 
¶37. (SBU) What impact, if any, has there been on post's programs? 
 
-- Post is keenly interested in maintaining or increasing the levels 
of the USDA Food for Progress program.  Post's LES and American 
personnel have also suffered from skyrocketing food prices.  Not 
only are the American staff without the benefit of a COLA, they are 
spending more on food at a time when post's differential was 
inexplicably slashed from 25% to 20%. 
 
-- We are seeing more press coverage about U.S.-related food price 
increases, so there is a risk that some of the blame for high local 
food prices may be directed at the U.S. 
 
POLICY PROPOSALS 
---------------- 
 
¶38. (SBU) What policy recommendations would post recommend to host 
government? 
 
-- Urgent Measures to Address High Food Prices: 
 
¶A. Increase agricultural productivity by deploying available science 
and technology (esp. related to livestock and higher yield, drought 
resistant plant varieties and seeds); enhance resource management 
(esp. sustainable range management); and increase educational 
alliances in support of the two previous items. 
 
 
ULAANBAATA 00000205  010 OF 010 
 
 
¶B. Alleviate transportation, distribution, and supply chain 
bottlenecks by developing trade and transport corridors, and 
increase access to capital development. 
 
¶C. Promote sound, market-based principles by implementing sound 
agricultural and food policies, and develop contingency planning. 
 
¶39. (SBU) What changes in USG policy would you recommend in order to 
address the problem of food price rises, given the experience of 
your host country? 
 
-- Post is consulting with USDA and USAID regarding recommended 
changes.  In 2006, the Embassy explored with the GOM the possibility 
of using USDA General Sales Manager (GSM) food export credits, but 
the GOM, per the IMF's instructions, would not/not offer GOM 
guarantees for local banks, a policy the IMF has partially backed 
away from, saying limited, carefully controlled guarantees are 
appropriate now given Mongolia's financial state.  It may be time to 
revisit this prospect as a possible source of rapid, short-term 
funding for needed imports. 
 
-- USDA might look at what commodities, such as rice, that it might 
be able to supply/sell should China ban exports. 
 
GOLDBECK