Twelve years ago the parliament issued a 23rd resolution to approve the government policy on food and agriculture. The goal of this policy to bring about intensive development in agriculture was aimed at creating favorable economic and business environment, improving efficiency and capacity, ensuring sustainable development in animal husbandry, food, and agriculture, producing ecologically friendly, healthy products, and improving their quality and availability. The objectives of the policy included increasing the production of major food and agricultural products, ensuring the domestic production meets the domestic need for meat, milk, wheat flour, potatoes, and other vegetables, and reducing imports while increasing exports. The implementation of this policy, which had two phases and has gone through six different governments, is being completed this year. The only question is “What outcomes has this policy delivered?”
TODAY
On February 5, 2015, there was a big demonstration involving dozens of combine harvesters, tractors, and jeeps in the central square of the capital city. At the demonstration, a representative from the Mongolian Crop Farmers Association gave a speech, read their letter addressed to the government out loud holding a microphone, and poured some wheat on the ground in the end of the speech. Crop farmers have demanded the government to free prices, allow exports, and stop importing wheat from abroad while pointing out that the government spent two years without providing funds for promoting the development of the sector. They say that the crop farming sector, which employs 300,000 people, is owed 70 billion MNT by the government. They criticized the government for buying 40,000 tonnes of wheat from abroad while claiming that they lack money.
“Wheat refused by the government is offered to all” was what they said when they poured the wheat in the central square. It was a feast of pigeons. Unlike pigeons, people have to wait for the wheat to be processed into flour before consuming it for food. The factories that make flour out of wheat buy better quality wheat from abroad and mix it with domestic supply to make their products because the quality of Mongolia’s wheat is subpar and its gluten content does not reach 24 percent.
R.Burmaa, a newly appointed minister of the newly established government, spoke about the wheat issue from a strong point of view. She said that, in order to provide consumers with healthy, safe, and reliable products, at least 40,000 tonnes of the 110,000 tonnes of wheat demanded to be imported by flour factories will be allowed. She also said that “Promotions will only be granted after the quality rather than the quantity is verified and the supply to flour factories is confirmed. Wheat will be traded on the agricultural stock exchange. In order to keep the price of wheat stable, there will be a reserve fund in the future.”
Minister Burmaa went on to say “The government has provided support worth 460 billion MNT, 126 of which was in cash, to crop farmers for the last few years. A total of 62 billion MNT was waived from VAT. Also, 50 percent of income tax is waived. Customs tax do not get imposed on fertilizers and agricultural equipment. Crop farmers are also granted interest-free loans from the fund to support growing crops. About 20-30 percent advance payment is given on wheat seeds and the rest is paid by wheat. Fifty percent advancement is granted on fuels and the rest is paid by wheat in the autumn. Crop farmers and other players in the sector owe 44.2 billion USD, 6 billion of which were omitted, to the fund to support growing crops. Flour factories also owe the government. In total, the total debt has reached about 80 billion MNT.” (Source: Daily News, Feb 9, 2015) She named certain companies who benefitted the most from these regulations but are demanding more money.
In 2014, Mongolia harvested a total of 490,000 tonnes of wheat, which was the highest number in our history. However, the harvested crop suffices the amount we need, but falls short of quality. Why is the crop farming sector demanding for 70 billion MNT despite owing 80 billion MNT? It is time for us to have a careful look at the cost of the flour we are consuming. It must not be forgotten that these billions of tugrugs waived from taxes could have spent on building schools and hospitals. We praise our ‘golden crops’, but it has actually become more expensive than gold.
PRICES SET BY THE MARKET, NOT BY THE GOVERNMENT
Excessive government regulations, promotions, and price restrictions that put free competition out of the play might seem efficient in the beginning. However, it eventually produces enormous costs and nests corruption. It is being proved by Mongolia’s policy and its outcomes.
It is good that Minister Burmaa is going to look at the wheat policy and its implementation through objective lenses and tidy up the ‘bear service’ provided by the government in agriculture and animal husbandry. She has faith from the people because she is a woman in politics and is almost the first minister who does not own a private business in the sector she is taking care of.
No country has achieved success after their government set prices in short, mid, and long term. It only helped the politicians who preached for increased government control to be re-elected. Almost every sector where the government set prices went bankrupt.
Voluntary, free trade can only take place in the market where prices are set by the law of supply and demand. Such prices contain the most accurate and refined information about the market. This kind of accurate information helps consumers and suppliers make their own choices. When the government gets involved and starts setting prices, this information becomes inaccurate and sends out wrong signals to everyone in the market. It disrupts the invisible regulation of the market and brings about excessive production, lesser quality, and forced supply of products and services. Eventually, the development of the sector slows down while the companies lose their competitiveness.
The soft loans and promotion money from the government cannot be shared by everyone. Therefore, companies start competing to acquire such support from the government and stop competing with their quality and costs. As every resource gets depleted, the government runs out of money. When it happens, the companies that are so used to the soft loans and subsidies keep demanding the government to sustain their support and start protesting. It leads to bankruptcies whereas some businesses choose another sector to operate in. As a consequence, the development of the sector goes back to square one.
It can all be understood from the classic example of Mongolia’s 12-year government policy on crop sector and price regulations. The price of wheat flour being sold today on the market is a lot less than its actual costs. This price does not include the money collected from taxpayers and given to crop farmers. In a market economy, government involvement in setting prices does not benefit everyone and bears negative consequences to the wider economy, but it provides advantages to certain groups.
Mongolians are expecting “Buudai” (wheat is translated as buudai in Mongolian) Burmaa to determine the actual costs and benefits of government policy on not only wheat but also other agricultural products, shape its future trend, and make the operations of the ministry transparent to the public.
2015.02.11