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Mar. 10, 2015 - Updated 04:16 UTC

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Mongolian Cashmere Goes Global

May 30, 2016

Mongolia is the world's second biggest producer of raw cashmere, and efforts are being made to increase cashmere products to tap into new markets around the world.

Cashmere produced in Mongolia was on display last month at Fashion World Tokyo, one of Japan's largest fashion trade shows. The country is responsible for roughly 40 percent of global cashmere output.

Over the past decade, the economy of Mongolia has been developing rapidly, supported by its wealth of mineral resources.

However, in the wide-open plains outside the capital of Ulan Bator, many families still live traditional lifestyles as nomadic herders.

About 600,000 people in Mongolia work in livestock farming. That's around 20 percent of the population.

As winter passes and spring begins, the peak season for the cashmere harvest approaches. To survive the harsh winters, goats grow soft, fine down under an outer layer of coarser hair. The undercoat is harvested using a comb.

The average amount of cashmere taken from a single goat is only about 300 grams.

In the outskirts of Ulan Bator, signs that say “We buy cashmere" are frequently seen along the roads.

"Cashmere is our life blood," says a herder searching for the best price.

Today's price is $30 per kilogram. One couple has brought 3 kilograms with them, which will earn them $90.

About 8,000 tons of unprocessed cashmere is purchased across Mongolia. Nearly 90 percent of this ends up in China.

The reason can be traced back to Mongolia's former socialist economy. At that time, all livestock belonged to the government. The type and number of herds were regulated. Nomadic herders were paid a salary by the government as long as they met quotas imposed for meat and dairy produce.

There was only one state-owned factory that made cashmere products, and most of these were exported to the Soviet Union and Eastern Bloc countries.

In the early 1990s, the socialist government collapsed. As a market economy was gradually introduced, private ownership of livestock increased.

With unprocessed cashmere selling for nearly 50 times the price of regular sheep wool, most farmers expanded their herds of cashmere goats in search of profits.

In the early 1990s, there were about 5 million goats, but they more than quadrupled over the following decades. It became impossible for Mongolian factories to process all the output.

Meanwhile, cashmere factories had sprouted up one after another just across the border in China. Mongolia came to rely on its neighbor as the major export market for its raw cashmere, and China became the world's leading manufacturer of cashmere products.

About 20 years have passed and now, Mongolia is trying to escape its over-reliance on China.

"We aim to complete production of cashmere products within Mongolia, and export them overseas, because only around 10 percent of the cashmere produced here goes through that process," says Battseteg Baasanjav, senior officer at Mongolia's Ministry of Industry. "By changing this, we would be able to earn much more profit than by simply exporting raw cashmere."

In recent years, a fall in global prices of natural resources has led to a rapid slowdown of Mongolia's economy.

In 2013, the government came up with a plan to boost the cashmere industry. It decided to provide low-interest loans for purchases of raw cashmere and the refurbishment of processing facilities.

Mongolia’s largest cashmere company, Gobi, is working hard to promote sales overseas. Cardigans and sweaters are its main products. The company employs 1,300 workers, and its annual turnover is around $40 million.

The company began as a state-owned factory, but it was privatized in 2007. Its strength lies in its ability to handle every step of manufacturing internally -- from the processing of raw fibers to the creation of the finished products.

The company is now focusing on developing products to sell overseas. In 2008, it set up a new design team for that purpose. The company has also been recruiting designers with experience studying abroad. It plans to secure contracts with Italian designers in the near future.

Baatarsaikhan Tsagaach, the company's president, is behind the transformation. He's trying to launch a new fashion label.

"I aim to develop a Mongolian cashmere brand that will be recognized by customers across the globe, and sell it in larger quantities," Baatarsaikhan says.

The name of the brand is the Organic. The company aims to win over high-end consumers. The brand's main items are its line of coats. In fact, its catchphrase is "from Goat to Coat."

Today, the company is holding a design meeting with sales staff responsible for overseas markets.

"Over in Japan, many people wear a cross between a coat and a cardigan. These are called coat-igans. They are long cardigans, and in Mongolia they would be called a coat," one staff member says.

The production line will start rolling in 2 months. The brand will be launched in September of this year. The company intends to create nearly 100 new products in the lead-up.

"I want to improve our productivity. I also want to develop more efficient management, so that our company can compete globally,” Baatarsaikhan says.

As part of its efforts to boost exports of cashmere products, the Mongolian government has established new quality standards. Goods are screened by a third party. Those that pass are allowed to use what's called the Khaan Shirhegt logo for 2 years.

The logo comes from the Mongolian word "khaan," which means means emperor. It has already been trademarked in over 30 countries across Europe and Asia. Companies will be able to apply for accreditation from this year onwards.

However, most of the 100 or so cashmere garment-makers in the country are small or mid-sized firms. For these smaller companies with limited funds, sourcing cashmere is a challenge.

One such company is Khatan Suljee. It produces around 20,000 cashmere products every year.

The president, Badamkhand, established the company in 2006. She currently employs 45 people. The company generates annual revenue of $1.5 million.

The company produces both cashmere and wool products. This year, it will only get access to half its usual volume of raw cashmere, so it plans to increase production of cheaper wool goods instead.

"Whenever buyers from Chinese companies come here to purchase raw cashmere at high prices, all the neighboring herders hear about it. We want to buy the cashmere as well, but it's as if the Chinese are determining the prices," says Badamkhand.B, general director at Khatan Suljee. "We have no choice but to follow the market price."

Badamkhand is attempting to expand her business by cooperating with smaller companies.

Today, Tumenjargal Magsar, the president of a firm that sells cashmere yarn to Khatan Suljee is paying a visit. Because her company doesn't have a loom, Khatan Suljee produces cashmere gloves and other finished goods for her.

"We do not have the equipment required to make these products, so we place orders with this company to manufacture the gloves," Magsar says. "The equipment is far too expensive for us to buy."

"This company is skilled at primary processing, so we ask them to make yarn for us," Badamkhand.B says. "In return, we accept orders to manufacture their products. Small companies like us must work together."

The Mongolian cashmere industry is trying to break free from China. Efforts to bring its finest cashmere garments to the world are underway.