ASIAN DEVELOPMENT BANK

PPA:MON 27536

PROGRAM PERFORMANCE AUDIT REPORT

ON THE

AGRICULTURE SECTOR PROGRAM (Loan 1409-MON[SF])

IN

MONGOLIA

November 2002

CURRENCY EQUIVALENTS Currency Unit togrog (MNT) At Appraisal (October 1995) $0.00217 MNT460.00 At Project Completion (December 1998) $0.001158 MNT863.24 At Operations Evaluation (May 2002) $0.000907 MNT1,103.00

MNT1.00 $1.00

= =

ABBREVIATIONS AB ADB ASP CMEA DA GR MFA MNE NPAP OEM PCR PIA PPAR PPTA SAF SDR SEFF SRA TA TACIS Agricultural Bank Asian Development Bank Agriculture Sector Program Council for Mutual Economic Assistance Department of Agriculture government resolution Ministry of Food and Agriculture Ministry of Nature and Environment National Poverty Alleviation Program Operations Evaluation Mission project completion report poverty impact assessment program performance audit report project preparatory technical assistance State Agricultural Fund special drawing rights State Emergency Fodder Fund State Reserve Agency technical assistance Technical Assistance to the Commonwealth of Independent States

NOTES (i) (ii) The fiscal year (FY) of the Government ends on 31 December. In this report, $ refers to US dollars.

Operations Evaluation Department, PE-606

CONTENTS Page BASIC DATA EXECUTIVE SUMMARY I. BACKGROUND A. Rationale B. Formulation C. Objectives and Scope D. Financing Arrangements E. Program Completion Report F. Operations Evaluation IMPLEMENTATION PERFORMANCE A. Effectiveness of Design B. Policy Reform Measures C. Program Management PROGRAM RESULTS A. Performance Indicators B. Impact of Policy Changes C. Institutional Impact D. Social Impact E. Environmental Impact F. Overall Sector Performance G. Sustainability KEY ISSUES FOR THE FUTURE A. State Support For Wheat Production B. Postprivatization Support C. State Emergency Assistance and Fodder Reserves CONCLUSIONS A. Overall Assessment B. Key Lessons Learned C. Follow-Up Actions ii iii 1 1 2 2 2 3 3 3 3 4 11 12 12 12 14 14 14 15 15 16 16 17 18 18 18 19 20

II.

III.

IV.

V.

APPENDIXES 1. 2. 3. 4. Statistical Tables Reform Milestones and Key Events Policy Measures and Status of Implementation Interest Compensation for Commercial Lending to Agriculture in Ukraine 21 28 31 43

BASIC DATA Agriculture Sector Program (Loan 1409-MON[SF]) Program Preparation/Institutional Building
TA No. 2127 2127 2457 2458 2458 TA Name Agriculture Sector Program Agriculture Sector Program (Supplementary) Institutional Strengthening in the Agriculture Sector Strengthening Land Use Policies Strengthening Land Use Policies (Supplementary) Type PPTA PPTA ADTA ADTA ADTA No. of Person-Months 10 7 55
1

Amount ($000) 300 175 800 580 244

Approval Date 25 Jul 1994 13 Jun 1995 5 Dec 1995 5 Dec 1995 14 Aug 1997

15 14.5

Key Program Data ($ million) Total Program Cost ADB Loan Amount/Utilization Key Dates Fact-Finding Appraisal Postappraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness First Tranche Release Second Tranche Release Loan Closing Program Completion Months (effectiveness to completion) Borrower Executing Agencies Type of Mission Fact-Finding Appraisal Postappraisal Program Administration Inception Loan/TA Review Program Completion 3 Operations Evaluation

As per ADB Loan Documents 2 35.0 2 35.0 Expected

Actual 2 33.0 2 33.3 Actual 1130 May 1995 122 Aug 1995 812 Oct 1995 2728 Oct 1995 5 Dec 1995 6 Dec 1995 14 Dec 1995 14 Dec 1995 19 Dec 1997 31 Mar 1998 31 Dec 1998 37

5 Mar 1996 5 Mar 1996 Jun 1997 31 Mar 1998 31 Dec 1998 34

Government of Mongolia Bank of Mongolia No. of Missions 1 1 1 1 2 1 1 No. of Person-Days 80 110 5 6 30 44 49

ADB = Asian Development Bank, ADTA = advisory technical assistance, PPTA = project preparatory technical assistance, TA = technical assistance. 1 Excluding 36 person-months of volunteer services provided by nongovernment organizations. 2 Equivalent to SDR23.42 million. 3 Comprising Ellen Qiaolun Ye, Senior Evaluation Specialist (Mission Leader) and Ivan Ruzicka (International Consultant).

EXECUTIVE SUMMARY The Agriculture Sector Program (ASP) was designed to support the transition of Mongolian agriculture from a centrally planned system to a market-based economy. Financially, the ASP was to provide urgently needed funds to the country, which was in the midst of a crisis. The ASP addressed three broad areas: (i) promotion of competitive markets, (ii) institutional support to facilitate competitive markets, and (iii) social and environmental concerns. A total of 31 policy measures were designed under 10 policy objectives with a heavy focus on the crop subsector, which was seen as the major problem in the agriculture sector at that time. The Asian Development Bank (ADB) made a loan of $35 million equivalent in December 1995. The Ministry of Food and Agriculture implemented most policy measures in collaboration with other government agencies. Although the release of the second tranche was delayed by 6 months due largely to delays in privatization, the ASP was completed in December 1998 as planned. ADBs program completion report rated the ASP partly successful. The Government actively participated in the ASP design. Close cooperation with ADB allowed the Government to influence the design and fostered strong ownership of most reform measures. However, the design was ambitious, and the coverage too broad. About 75% of the policy measures were accomplished. The objectives of farm privatization, price liberalization, and promoting markets for land-use rights were largely achieved. The objectives of ensuring the sustainability of the extensive livestock and establishing agricultural extension systems were not achieved, although reforms in these areas set the right direction and generated momentum for continued progress. The reforms to revitalize agricultural financing and to reduce government interventions in the state emergency fodder reserve failed. Due to a lack of commercial lending for wheat farming and heavy animal losses in the past three winters, the Government continues to intervene in these areas. While the processing and implementation of the ASP were smooth with minimal delays, inefficiency occurred as substantial technical assistance resources were used to produce many action plans, but few of them were implemented due to insufficient follow-up and financial support. The sustainability of ASP reforms on farm privatization, price liberalization, and landuse rights is likely, as the reform direction has been maintained. Two major reversals occurred relating to the state fodder reserve and agricultural financing, as government interventions in these areas have been resumed since ASP completion. The sustainability of the agricultural extension system is less clear due to a lack of reliable funding. The ASP contributed to an improved policy and regulatory environment for agricultural development in Mongolia and improved capacity of staff in the Ministry of Food and Agriculture who were involved in its design and implementation. It may be argued that the ASP contributed to stabilization of poverty, not so much by implementing social measures but more by the provision of the $35 million loan when Mongolia was in a deep financial crisis. However, the ASP reforms, by eliminating farm subsidies, contributed to the decline in wheat production, raising political concerns over food security in the country. Based on the above assessments, the overall rating of the ASP is partly successful. The following sector issues are identified. State Support for Wheat Production. The continued and sharp decline of wheat production has caused concerns about food security and financial losses to farmers. Consequently, the Government has resumed interventions in wheat production, including subsidized credit and equipment to selected farms. While the positive impact of these subsidies is limited and temporary, the negative impact on the sector is significant and long term, including the granting of authority to government officials to intervene in farm production, delays in orderly exit of marginal land and inefficient farms, and potential bad debts that would deny farmers

iv access to credit in the future. To transform the current loss-incurring wheat farming into a viable and sustainable subsector, alternative mechanisms need to be explored, such as tax exemption or interest compensation to encourage agricultural lending, guarantee schemes to reduce lending risk, and supplementary support including training and technical advice to farmers and commercial banks. Postprivatization Support. The ASP set its overall objective at promoting market transition instead of improving sector efficiency, and focused on introducing policy reforms without sufficient attention to identifying postprivatization support needed to remove other factors that restrict farms ability to respond to an improved policy environment. As a result, the ASP established necessary but not sufficient conditions for viable wheat farming in Mongolia; the wheat subsector has so far remained inefficient and unsustainable. State Emergency Assistance and Fodder Reserves. In view of the heavy losses of animals in the past 3 years due to very cold winters, the Government has substantially increased the size of the state emergency fodder reserve, which had been reduced by the ASP reforms. The current system of keeping a large stock of hay and fodder in government warehouses and distributing it to herders in need during or after a disaster is very expensive and largely ineffective, due mainly to the difficulties in transporting the bulky hay or fodder during winter, especially during the harsh weather period. More cost-effective approaches with a real impact should be explored, such as helping herders to fully prepare for the winter by building animal shelters and keeping fodder stock at the household level. State assistance should be limited and well targeted, such as distributing fodder purchase coupons exclusively to the very poor to enable them to purchase and store fodder. Lessons learned from the ASP include the following: (i) The initial conditions in a sector determine the positive or negative impact of policy reforms in a transition economy. If a sector was heavily subsidized prior to the reforms (such as the wheat subsector in Mongolia), application of a standard reform package of privatization, price liberalization, and withdrawal of state intervention may lead to sharp decline of sector outputs. Supplementary measures are needed to offset the negative impact of the reforms. A program design that focuses on introducing policy reforms without providing measures to address the underlying reasons of government interventions may face the risk of policy reversal after program completion. Farm privatization and price liberalization are not final goals but a means to achieve sector efficiency. In a capital-intensive subsector, such as wheat farming in Mongolia, privatization and price liberalization alone cannot achieve efficiency if other constraints such as farmers lack of working capital continue to restrict farmers ability to respond to liberalized prices. It is more efficient for a program to focus on removing a few of the most critical sector constraints so as to enable a full realization of the reform impacts than to cover a broad range of reform areas with diluted efforts. The requirement for conducting poverty impact assessment has the merit of ensuring full awareness of the potential negative impact of the proposed reform measures. The requirement that each program takes care of its social impact, however, may lead to superficial design of social reform measures. Given the focus of program design on policy reforms, it is better if essential povertyreduction measures are designed as supplementary projects alongside a program instead of within it.

(ii)

(iii)

(iv)

(v)

I. A. Rationale

BACKGROUND

1. The Agriculture Sector Program (ASP) was designed to support the transition of Mongolian agriculture from a centrally planned system to a market-based economy. Financially, the ASP was to provide urgently needed funds to the country, which was in the midst of a crisis after the cessation of financial assistance from the Council for Mutual Economic Assistance (CMEA) countries; the assistance had accounted for nearly one third of Mongolias gross domestic product. In conjunction with the termination of the CMEA preferential trade and payment systems, the financial crisis resulted in a 4-year consecutive decline of gross domestic product from $1,133 million in 1989 to $880 million in 1993, and a rise in inflation from zero in 1989 to 268% in 1993 (Appendix 1, Table A1.1). 2. Agricultural reform in Mongolia started in the late 1980s alongside overall economic reforms (Appendix 2). By the time of ASP formulation, the central planning and state order system had been abolished. Privatization of state assets had been implemented through allocation of vouchers. Trade and prices had been liberalized with the exception of prices of key commodities such as energy, basic food items, and medicines. In agriculture, the extensive livestock subsector, which accounted for 73% of gross agricultural product, had been almost entirely privatized (Appendix 1, Table A1.2), and a growth rate of 15% had been achieved in 1994. In contrast, the crop subsector, which comprised mainly state farms for wheat production, continued to suffer from government control and financial losses, with a 29% reduction in wheat production in 1994 and an accumulated decline of 46% from 1990 to 1994 (Appendix 1, Table A1.3). 3. The collapse of the crop subsector was due to many factors. One major cause was inappropriate reform sequencing. While price liberalization of farm inputs substantially increased the cost of wheat production, prices of wheat were depressed due largely to direct and indirect interventions by local governments aiming to keep food prices affordable for consumers. Consequently, wheat farms suffered losses, surviving by subsidized credit from the Government. This built up heavy debts in wheat farms and adversely affected other related industries such as flour mills and banks. A more fundamental problem, however, was the wheat farms high level of mechanization that developed in the prereform era under generous financial support from CMEA countries, resulting in a heavy reliance on imported machinery, equipment, chemical inputs, and government financial support. With the termination of CMEA assistance, the near-collapse of the wheat subsector was inevitable. Already handicapped by climatic factors such as short growing seasons, low and variable precipitation, low mean annual temperature, and high evapotranspiration, a severe shortage of working capital prevented normal farm operations, leading to a low wheat yield of 0.75 ton/hectare (t/ha) in 1994 (Appendix 1, Table A1.3). 4. At the time of ASP formulation, there was a concern that the partially reformed agriculture sector might become a potential source of destabilization in the country. Following a new country operational strategy in 1994, the Asian Development Bank (ADB) decided to postpone its investment projects in agriculture1 and focus first on policy reforms to establish an appropriate policy and institutional environment.
1

Three project preparatory technical assistance (PPTAs) had been provided to the agriculture sector before 1994: TA 1649-MON: Livestock Feed Improvement Project, for $400,000, approved on 7 January 1992 (supplementary financing of $59,150 approved on 24 March 1993); TA 1808-MON: Agricultural Processing, Storage and Distribution Project, for $400,000, approved on 17 December 1992; and TA 1886-MON: Irrigation Systems

2 B. Formulation

5. A project preparatory technical assistance (PPTA)2 for the ASP was implemented from November 1994 to April 1995. The final report provided (i) a good analysis of the agriculture sector covering policy, institutions, and the legal framework; (ii) a detailed agriculture sector strategy including strategies for subsectors; and (iii) a design of ASP including a draft policy matrix. The PPTA was extended by 4 months by a supplementary grant3 to facilitate the implementation of policy measures designed as conditions for loan approval and first tranche release, and to conduct a poverty impact assessment (PIA), which was a new requirement for all program loans. Findings of the PIA contributed to the design of social measures under the ASP. ADB fielded three missions for ASP preparation (Basic Data), which worked closely with the PPTA consultants and cooperated with other international agencies, especially the World Bank and the International Monetary Fund. C. Objectives and Scope

6. The overall objective of the ASP was to promote the transition to a competitive and market-based agriculture sector. The ASP covered three broad areas: (i) promotion of competitive markets, (ii) institutional support to facilitate competitive markets, and (iii) social and environmental concerns. A total of 31 policy measures were designed under 10 policy objectives with a heavy focus on the crop subsector, which was seen as the major problem in the agriculture sector at that time. Three advisory technical assistance (TA) grants were provided to facilitate the implementation of the broad policy and institutional reforms: two were attached to the ASP and the third was a standalone TA approved 7 months later.4 ASPs objectives and scope were detailed in the Development Policy Letter and its Policy Matrix (Appendix 3). D. Financing Arrangements

7. The ASP, supported by a loan of SDR23.42 million ($35 million equivalent)5 from ADBs Special Fund resources, was approved on 5 December 1995. The loan proceeds were to be utilized in 24 months and disbursed in two equal tranches against a broad range of imports subject to a negative list of items. The counterpart funds generated from the loan proceeds were to be used by the Government for general development purpose including the transition of the agriculture sector to a market-based system.6

2 3 4

Rehabilitation Project, for $500,000, approved on 13 May 1993. The ensuing loan projects were deferred indefinitely as such investments were unlikely to succeed without a coherent policy framework. TA 2127-MON: Agriculture Sector Program, for $300,000, approved on 25 July 1994. TA 2127-MON: Agriculture Sector Program (Supplementary), for $175,000, approved on 13 June 1995. These were TA 2457-MON: Institutional Strengthening in the Agricultural Sector, for $800,000, approved on 5 December 1995; TA 2458-MON: Strengthening Land Use Policies, for $580,000, approved on 5 December 1995 (supplementary financing of $244,000 approved on 14 August 1997); and TA 2602-MON: Study of Extensive Livestock Production Systems, for $600,000, approved on 4 July 1996. The last TA could not be attached to the ASP due to limited TA budget available in 1995. It was estimated at appraisal that a minimum of $90 million would be required during the transition period to resolve the bad debts in the agriculture sector and to replace capital equipment in farming and in agricultural processing enterprises; another $10 million was needed for implementing the Land Law; and $0.5 million per year would be required to equip extension services. Using a discount rate of 20% per year over a 5-year period, the adjustment cost was estimated a minimum of $63 million. The ASP design did not earmark the counterpart funds for agriculture. In view of the budgetary crisis that the Government was facing at the time of ASP formulation, ADB decided that the ASP loan would be used for general budgetary support and let the Government determine its budgetary allocation.

3 8. The Executing Agency was the Bank of Mongolia, which was to be responsible for overall program implementation and loan withdrawal. The Ministry of Food and Agriculture (MFA)7 was responsible for coordinating the implementation of policy measures in collaboration with the Ministry of Nature and Environment (MNE) and other government agencies. In reality, the Bank of Mongolia was involved in loan withdrawal and disbursement but not in policy implementation. MFA implemented most policy measures in collaboration with other relevant agencies. E. Program Completion Report

9. The ASP was completed in December 1998; a program completion report (PCR) prepared by ADBs Agriculture and Social Sectors Department (East) was circulated to the Board in May 2000. The PCR rated the ASP as partly successful crediting it with fiscal support to the Government, a positive role in redefining the role of MFA, accelerating privatization, improving agriculture sector performance, and developing an information database. The reform progress was slower than anticipated, with a 6-month delay in compliance of the second tranche conditions. The PCR reported that 22 of the 31 policy measures were accomplished or substantially accomplished; the remaining 9 were partially accomplished. Overall, the ASP created a platform for future sector reforms, but it was too early to assess its long-term impact. F. Operations Evaluation

10. An Operations Evaluation Mission (OEM) visited Mongolia in AprilMay 2002 to evaluate the performance of the ASP. The OEM held discussions with representatives of government agencies, local governments, flour mills, commercial banks, farm enterprises, and other international agencies; and interviewed herders and crop farmers. The program performance audit report (PPAR) focuses on the relevance and achievements of the ASP reforms, its contribution to agricultural development, and sustainability of its achievements. Copies of the draft PPAR were submitted for review to the Ministry of Finance and Economy, MFA, and ADB staff concerned. Comments received were considered in finalizing the PPAR. II. A. Effectiveness of Design IMPLEMENTATION PERFORMANCE

11. The Government actively participated in the ASP design through intensive policy dialogue between senior government officials and the ADB appraisal team (including PPTA consultants). This close cooperation enabled the Government to influence the ASP design,8 and fostered its ownership of most reform measures (with a few exceptions).9 A salient feature of the ASP design was its front-loading, as 17 of the 31 policy measures in the Policy Matrix were conditions for loan approval and first tranche release. The completion of these measures substantially reduced the load of ASP implementation: by the time of ASP approval, there were only 14 policy measures left, including six second tranche conditions.

The MFA was restructured into Ministry of Agriculture and Industry in 19962000; it regained its original designation in 2001. For example, ADB initially proposed eliminating the State Emergency Fodder Fund (SEFF). Due to strong opposition from the Government, the ASP design included measures to reduce the size and limit the role of the SEFF instead of a complete elimination. One notable exception related to agricultural financing. ADB insisted on eliminating directed and subsidized credit in spite of the Governments strong opposition. The Governments lack of ownership of this reform led to reversal after ASP completion (para. 31).

4 12. There were some weaknesses in the ASP design. First, the ASP set its overall objective at promoting market transition instead of increasing sector efficiency or facilitating sector recovery (the most urgent and critical issue at that time), and gave insufficient attention to other key issues such as agricultural financing, which eventually restricted the full impact of the policy reforms. Second, the ASP design was ambitious, covering 10 policy objectives, some of which were overstated.10 To fulfill the ambitious targets, the ASP included numerous studies that were conducted by consultants rather than the Government, and borrowed measures that were implemented prior to ASP preparation, or by TAs and loans that were outside the ASP. If sector efficiency or sector recovery had been set as the overarching goal, prereform conditions of the agriculture sector as well as its backward and forward linkages could have been carefully studied; prioritizing of the reform measures could have been conducted to select fewer but most critical interventions; and conditions or supplemental measures necessary to enable the full supply response could have been developed to maximize the reform impacts. B. Policy Reform Measures

13. Based on information up to May 2002, the OEM reassessed the implementation status of ASP reform measures. Of the 31 policy measures, 21 were accomplished, 2 substantially accomplished, 7 partially accomplished, and the remaining one (discontinuing directed and subsidized credit to the agriculture sector) was largely unaccomplished.11 A summary of the implementation status is given in Appendix 3 while detailed analysis is provided below. 1. Promoting Competitive Markets a. Creation and Implementation of an Agriculture Sector Strategy

14. Two measures were designed to create and implement a Medium-Term Strategy for Agricultural Development; both were partially implemented. The Strategy was developed under the PPTA, mainly through the efforts of the TA consultants as well as a series of discussions between ADB missions, the consultants, and MFA. The PCR reported that the Strategy was approved by the Cabinet of Ministers on 30 May 1995. Its implementation, however, was poor due to MFAs weak ownership. Based on available documents including minutes of Cabinet meetings, the OEM found that the Cabinet meeting on 30 May 1995 discussed the Strategy, agreed with it in principle, but asked for revisions. At the end, the Strategy was not formally adopted by the Government, although its principles were incorporated into the Governments Rural Policy Guidelines adopted by the Cabinet on 12 June 1995 (No. 35/104). In retrospect, ADB should have worked with MFA to strengthen its Rural Policy Guidelines instead of developing another strategy with little government authorship and ownership. b. Promoting Markets in Land-Use Rights

15. Two measures were included requiring passage of a Land Law and issuance of related regulations. Both measures were accomplished. The Land Law was passed on 11 November 1994 and became effective on 1 April 1995.12 Regulations to implement the Land Law were passed by government resolution (GR) on 19 August 1995 (GR 143/95). The PCR reported that neither the
10

11 12

For example, the ASP aimed to create and implement an agriculture sector strategy with only two measures, to revitalize financial institutions serving the agriculture sector with another two measures, and to ensure the sustainability of the extensive livestock center with only one measure. OEMs assessment slightly differs from that of the PCR (see para. 9 and Appendix 3). ADBs policy dialogue in 1994 contributed to the development of the draft Land Law. However, it might not be appropriate to credit the passage of the Land Law to the ASP because the PPTA of ASP commenced in November 1994 when the Land Law was passed.

5 Land Law nor its regulations were comprehensive; both contained ambiguities and inconsistencies. The Land Law was amended three timesin 1997, 1999, and 2002. Other legislation was issued in 1997, including the Land Fee Payment Law, the Law on Registration of Immovable Property, and the Geodesy and Cartography Law. 16. The enactment of the Land Law and its implementing regulations have led to several developments. Long-term (up to 60 years and renewable for another 40 years) lease certificates for possession or use of state land are now issued by provincial or city governors or mayors. Leases are registered by land and environment officers at district (sum) level. Lease certificates are issued for residential, commercial, and cropland but not for pastureland. In June 2002, a new revision of the Land Law was passed, allowing the transfer of leases of cropland and the use of the leases as collateral. 17. The objective of promoting markets for land-use rights was achieved with substantial delay and with the exception of pastureland. The difficulties lay in the ambiguous text of the 1994 Land Law and its weak implementability. The regulations (GR 143/95) failed to specify mechanisms through which the constitutional right to own land was to be exercised. It seems that the 1994 Land Law and its regulations were enacted in spite of their deficiencies, probably due to a pressure to operationalize the Law as soon as possible. In the early 1990s, the complexity of land ownership issues in Mongolia was probably underestimated. Since Mongolia has no history of private land ownership, and herders have the constitutional right to move their animals freely, opposition to private ownership of land, especially pastureland, has been very strong. Because of the difficulties, the Land Law had been under debate for 3 years and was passed in 1994 only after removal of its most controversial clauses relating to private ownership and pasture-use rights. In retrospect, the ASP could have set a more moderate but realistic target and focused on cropland only. c. Removal of Remaining Impediments to Free Pricing of Agricultural Products

18. Four measures were designed for this purpose, including issuance of GRs to remove remaining impediments to pricing of wheat, flour, flour products, and meat, as well as monitoring and publishing prices of these commodities. GR 176 was issued on 25 September 1995 discontinuing price control by central and local governments over agricultural commodities including wheat, flour, and meat products. The Monitoring and Evaluation Department of MFA began collecting and distributing price information on 46 commodities from retail markets in Ulaanbaatar and across the country. The data were collected every 2 weeks and disseminated by radio and newspaper. The notable omission was the wheat price. Since wheat sales were dominated by a relatively small number of rudimentary forward contracts between flour mills and wheat farms, prices of wheat reflected the financial cost of the flour mills provision of working capital to wheat farmers. 19. The withdrawal of the state from agricultural production and marketing has led to price variations of agricultural products in different parts of Mongolia, reflecting the pattern of transport costs that had been subsidized in the former centrally planned economy. The PCR, however, reported instances where the Government continued to influence market prices well into the late 1990s through, for instance, setting minimum wheat procurement prices in 1997, and disposing at preset prices wheat and flour given to Mongolia by donors. These issues have now been resolved, and aid wheat is currently sold at market prices. 20. While the ASP removed government impediments to free pricing of agricultural products, its design paid less attention to the likely effect on prices of market structures. In Mongolias

6 small and transport cost-sensitive economy, the potential market power of a small number of large buyers is considerable. In particular, the four largest flour mills currently account for 63% of total flour production, and the three largest meat-processing plants hold about 40% of the meat-processing capacity. Nevertheless, the price-setting power of these large companies has been curtailed by competition from imports and new market entrants. For example, the number of flour mills increased from 10 in 1990 to 265 in 2001 as successful wheat farms opened small flour mills to capture value added in wheat processing. d. Delimiting the Governments Role in Agriculture Markets

21. Three policy measures were designed to achieve this purpose, including one second tranche condition. These measures required (i) government purchase of grain, flour, and fodder to be made at market prices; (ii) the role of the SEFF (footnote 8) to be limited to emergency purposes;13 and (iii) government sales of fodder required for stock turnover purpose to be made at market prices. All these measures were accomplished. The Government now purchases grain, flour, and fodder at market prices. The SEFF was merged with a newly created State Reserve Agency (SRA). From over 100 state units producing and storing over 200,000 t of fodder before 1990, the number was reduced to 9 storage centers in 1996 keeping no more than 20,000 t. Disposals and replenishments of the fodder reserve are made at market prices. 22. At appraisal, the analysis of issues related to the SEFF focused on its negative impact on the Governments fiscal position without sufficient discussion of the effectiveness of such an emergency assistance stock (para. 75). Consequently, the ASP focused on limiting the role and size of the SEFF and making its purchases and sales at market prices without measures to help herders reduce animal losses during disasters (para. 76). 23. In view of the heavy losses of animals due to dzud14 over three consecutive winters in 19992001, the Government substantially increased the size of state fodder reserves. The number of storage centers rose from 9 to 22, 1 in each province; the fodder stock increased again from less than 20,000 t during the ASP period to over 300,000 t in 2001. e. Ensuring the Sustainability of the Extensive Livestock Sector

24. Although with a focus on crops, the ASP recognized the critical importance of the extensive livestock sector in Mongolia as a major source of livelihood and export revenue. Furthermore, overgrazing of pastureland had increasingly become a concern due to substantially increased numbers of animals in response to rising prices of cashmere, and migration of herders to areas around cities in response to declining social services in remote areas. While many studies had been conducted on this sector, the ASP included one measure that required a comprehensive study to bring together knowledge and understanding, develop a coherent policy and program, and formulate an action plan. 25. This measure was partly accomplished. The livestock study was completed under TA 2602 (footnote 4), implemented in 19961997. An action plan was formulated, integrating activities of various domestic organizations and external funding agencies, and calling for a total investment of $7.8 million in the short term (19981999) and $15.5 million for the medium term (20002002). The completion of the TA report, however, coincided with a rapidly worsening fiscal position, and the action plan was not adopted by the Government due largely to a lack of
13 14

The SEFF had been used routinely to supply subsidized fodder to deficient and remote areas in nonemergencies. A generic term denoting late autumn, winter, or early spring weather conditions that prevent livestock from obtaining forage from open grazing.

7 funding. Another factor was a proliferation of reports and recommendations produced by various TAs financed from external sources; the oversupply of reports overwhelmed MFA policymakers rather than helping generate consensus. Nevertheless, several components of the action plan are being implemented with assistance from other external agencies, with some modifications. 2. Providing Institutional Support to Facilitate Competitive Markets a. Transfer of Government Ownership to the Private Sector

26. Two measures were designed to complete the privatization of crop farms, flour mills, and other agroprocessing enterprises, including a second tranche condition that required the privatization of at least 70% of crop farms as well as 30% of agroprocessing enterprises. These measures were accomplished. Proposals for privatization were submitted by MFA to the State Property Committee in 1995 for a complete transfer of government ownership in flour mills and other enterprises still under the control of MFA. 27. The actual privatization of crop farms and enterprises took longer than anticipated as unlike the earlier voucher privatizationit involved firm financial commitments such as cash payments or assumption of old debt. The slow pace of privatization led to a delay of 6 months in the release of the second tranche. After the change of government in June 1996, privatization accelerated, the targets were achieved, and the process continued after the release of the second tranche. By ASP completion, the PCR reported that ownership transfer had been completed in 63 of the 89 state farms and 20 of the 28 agroprocessing enterprises. As of May 2002, the ownership of all farms and agroprocessing enterprises had been transferred to the private sector with only a few, though important, exceptions.15 28. Initially, the state farms were privatized into corporate farms. Later, new farms were created by leases issued by local authorities. New owners of the privatized farms include former employees of the state farms and new owners of agroprocessing enterprises. The latter include former employees, Ulaanbaatar-based investors, and foreigners. Performance of the privatized enterprises varies, depending on internal management as well as market conditions. b. Revitalizing Financial Institutions Servicing the Agriculture Sector

29. The design of the ASP in 1995 coincided with major efforts by ADB, the World Bank, and the International Monetary Fund to reform the banking sector in Mongolia. In view of a proposed Financial Sector Program to be financed by ADB in 1996, the ASP limited its interventions in the banking sector to only two measures: the conduct of audit for Ardyn Bank and Agricultural Bank (AB), the two major banks serving agriculture at that time, and the ending of directed and subsidized credit to the agriculture sector.

15

The exceptions are as follows: (i) three largest meat processing plants (Makhimpex, Bagahangai, and Meatexport Ltd.), jointly accounting for about 40% of the total industrial meat processing capacity and almost half of total meat exports. The lack of progress in Makhimpex has been due to the unwillingness of the Japanese Government so far to allow entities that in the past received Japanese grant aid to be open to privatization. In the case of Bagahangai Meat Processing Plant, the impasse is caused by existing foreign participation; (ii) Gobi Cashmere, in which the state continues to hold about 74% of equity after two unsuccessful attempts in 2001 and 2002 to divest the bulk of its ownership to private investors. The company has about half of the countrys existing cashmere processing capacity and unlike the majority of other processing plants in Mongolia, produces and exports final products rather than semiprocessed fiber; (iii) Mongolia Amicale, another cashmere processing plant in which the state holds 50% of the equity; (iv) an elite seed farm in Hongor, Darkhan that is 51% state owned; and (v) Ganteerem flour company that remains in state hands for the same reason as Makhimpex.

8 30. The first measure was accomplished in 1995 with the completion of the audit for the two banks under an ADB-financed TA.16 Ardyn Bank collapsed after the audit; AB remained substantially inactive, became illiquid and insolvent in 1999, but resumed lending at the end of 2000 after recapitalization and restructuring with financial and technical support from the United States Agency for International Development. The restructured AB makes loans to credible borrowers in all sectors, with only 9% of its lending flowing into agriculture, which is considered highly risky by commercial banks. As of 2001, only 1.2% of total commercial lending went to agriculture (Appendix 1, Table A1.4). As a result, crop farms, which rely heavily on machinery, suffer from a severe shortage of working capital. 31. The second measure was largely unaccomplished. Under pressure from ADB, directed and subsidized credit to agriculture was discontinued in 1995. As the ASP pushed through the reform without providing alternative mechanisms to finance wheat production, reversals soon occurred and ADBs loan review missions reported subsidized loans to wheat importers in 1996 and to wheat farms in 1997. These schemes were terminated again under ADB pressure during the ASP period but have been resumed since ASP completion. Currently, a Fallow 2001 program is providing credit to wheat farms for fuel purchase. Borrowers were selected by MFA and local governments, and interest rate was 1.2% per month, substantially below the market rate of 3%5% per month. Farm equipment granted by the Japanese Government is sold to selected farms at 30% discount, with subsidized credit financing two thirds of the equipment cost. These schemes are supported by a State Agricultural Fund (SAF),17 which is financed by funds generated from sales of commodity aid granted by international agencies, including wheat, flour, and farm equipment.18 c. Streamlining and Reorientation of Public Sector Institutions

32. Five measures including two second tranche conditions were designed under this component to: (i) reorganize MFA; (ii) analyze four institutions in the agriculture sector (SEFF; Provincial Food, Agriculture, and Environment Divisions; National Center for Gene Production; and Variety Trials Services) and develop action plans to restructure two of them (second tranche condition); (iii) implement the action plans; (iv) develop a cost-effective program for agricultural research and extension (second tranche condition); and (v) provide initial training for extension workers under such program. 33. The first and fourth measures were accomplished partly, and the others fully. The first round of MFA reorganization was carried out in 1995, which was followed by several rounds of restructuring, including a wholesale reorganization of MFA into the Ministry of Agriculture and Industry (footnote 7). In spite of restructuring, MFA retained certain elements of intervention in farm production, such as directing subsidized credit to selected farms. 34. An analysis of the four institutions was conducted under TA 2457 (footnote 4). The following institutions were restructured: the SEFF was absorbed by the SRA (para. 21); the National Center for Gene Production became the National Breeding Center; the Variety Trials Services were incorporated in MFAs new Crop and Plant Protection Division; and the Provincial Food, Agriculture, and Environment Divisions were dissolved and replaced by agriculture staff reporting directly to provincial governments.
16 17

18

TA 2219-MON: Strengthening of the Commercial Banking System, for $600,000, approved on 5 December 1994. The SAF was originally named the Wheat Fund, which was established in 1995, was terminated by ASP reforms in 19961997, and resumed operations in 1998. Wheat, flour, and farm equipment are given to the Government free of charge by international donors. The Government sells them in the market (in the case of wheat and flour) and to selected farms (in the case of farm equipment).

9 35. An Agriculture Extension Center was established in 1996 through GR 286 and started operations in 1997. Considerable training was conducted for extension staff. A multiyear action plan was formulated under TA 2457, together with budget projections. The action plan, which called for the establishment of five regional extension centers to reach 80% of crop farms, was implemented only in part. The Center was established with 9 staff, together with another 120 staff at the provincial level, or an average of 56 staff per province. Due to the shortage of staff and operational budget, the Center limited its activities to consultancy and training without providing field-level extension services. Later, a project funded by the Technical Assistance to the Commonwealth of Independent States (TACIS) financed the establishment of extension stations in five provinces, with an expectation to expand to another three provinces under a follow-up TACIS project in 2002. 36. The institutional restructuring of MFA has not achieved its objective of improving administration efficiency. While most officials in MFA appreciate the direction of the sector reforms and appear to have become more market oriented than before, the tendency to intervene in farm production nevertheless remains present, especially in years of poor harvest. The staff capacity of MFA in policy analysis and formulation, although improved, remains limited. 37. The objective of developing a cost-effective and efficient program for agricultural research and extension has not been achieved. The extension system in Mongolia remains very weak, and seriously understaffed due to a shortage of funds. At the time of ASP design, the risk of insufficient budgetary support for the extension system was recognized. Considering small farmers needs for extension services after privatization, the ASP included measures to establish the extension system in the absence of reliable funding mechanisms. Although the system is currently supported by temporary projects financed by TACIS, its long-term sustainability is threatened by the Governments inability to finance its full operation and by insufficient demand for fee-based services. 3. Mitigating Social and Environmental Concerns a. Identification and Mitigation of Social Impacts

38. At appraisal, the PIA (para. 5) estimated that increases in the prices of flour, bread, and meat caused by the ASP reforms would increase the number of poor by 84,000 and that of the ultra-poor by 25,000 in the absence of mitigation measures. Accordingly, six measures including two second tranche conditions were included to mitigate these negative social impacts: (i) implement the National Poverty Alleviation Program (NPAP); (ii) assess the social impact of food price increases; (iii) provide an annual budget of at least MNT680 million for the Support Fund for Low-Income Groups for 1996 and 1997;19 (iv) strengthen the social safety net through social insurance; (v) strengthen the monitoring of social impacts (second tranche condition); and (vi) design and implement programs to promote rural employment. 39. The above measures were accomplished or substantially accomplished except for the last one, which was partly accomplished. NPAP was formulated by the Government in 1994 and supported mainly by the United Nations Development Programme and the World Bank. The ASP was supplemented by NPAP20 and included NPAP implementation among the ASP policy
19

20

Since the budget provision was required for 1996 and 1997, this requirement accounted for two measures: the 1996 budget allocation was a first tranche condition, and the 1997 allocation was a second tranche condition. Supported by TA 2683-MON: Strengthening the National Poverty Alleviation Program, for $422,000, approved on 7 November 1996.

10 measures. In addition, by providing $35 million to the Government to remove its budgetary constraints, the ASP likely permitted budget allocation for NPAP. 40. The ASP measure of ensuring budgetary allocation for the Support Fund for Low-Income Groups seemed to be passive as the impact of the 2-year cash compensation was limited. A better alternative would have been income generation activities to provide long-term solutions to the poor. Due to the complexity of poverty reduction in the transition period, however, it was difficult to include serious poverty reduction activities in the ASP, which needed to focus on policy reforms. 41. Following the passage of a social insurance law in January 1995, a new social insurance system was initiated with support from two ADB-financed TAs.21 Five types of social insurance are currently provided: (i) retirement pension, (ii) sickness benefit, (iii) industrial injury, (iv) unemployment, and (v) health. Contributions are compulsory for all employers and employees. The two TAs were effective in establishing foundations for a far-reaching reform of the social security system. The OEM noted, however, that the social security system benefited more urban residents than farmers and herders. 42. To fulfill the requirement of monitoring ASPs social impact, the ASP relied on an earlier TA22 and TA 2683 (footnote 20), which supported a household survey designed by the National Statistical Office. The survey duplicated the two comprehensive living standards measurement surveys conducted by the National Statistical Office in 1995 and 1998. 43. Since it was difficult for the ASP to include employment generation activities, the ASP was complemented by activities carried out by the Local Development Fund under NPAP as well as the Employment Generation Project financed by ADB (Loan 1290-MON). The latter was designed in 1993 and focused on Ulaanbaatar without covering any rural areas.23 b. Identification and Mitigation of Environmental Impacts

44. Based on the findings of an initial environmental examination conducted during ASP formulation, three measures were included to (i) assess the environmental impact of intensified crop production and abandoned cropland (due to loss-incurring wheat production on marginal land); (ii) implement the resultant recommendations; and (iii) assess the environmental impact of changes in the extensive livestock sector and adopt an action plan to implement the related recommendations. 45. The first measure was accomplished fully, and the others partly. The assessment of the environmental impact of crop production was conducted by means of the initial environmental examination as part of the ASP preparation. Recommendations were proposed that required the efforts of MFA, MNE, research institutes, and the National Commission for Regulation of Toxic Chemicals. Some of the actions recommended were being acted upon at the time of the ASP design, such as passage of the Law on Protection for Toxic Chemicals in April 1995. A subsequent GR 83/A/160 classified agrochemicals by toxicity. Many initial environmental
21

22

23

TA 2252-MON: Strengthening Social Insurance, for $84,000, approved on 20 December 1994; and TA 2371MON: Administrative Reform of Social Insurance, for $900,000, approved on 28 July 1995. TA 1811-MON: Improving and Strengthening the Statistical System, for $500,000, approved on 22 December 1992. Based on the PPAR of Loan 1290-MON: Employment Generation Project, that project did not achieve its lending target, and the participating commercial banks collapsed during project implementation. However, the savings and credit cooperatives introduced by the project successfully delivered microcredit to low-income groups in Ulaanbaatar.

11 examination recommendations were overly broad, calling for a change of approach and specific actions, and never acquired the status of a concerted program. As a result, piecemeal implementation of certain elements occurred, reflecting mainly budget and foreign grant availability. 46. TA 2602 (footnote 4), generated a wide-ranging assessment of the environmental impacts of reforms in the livestock sector. Many recommendations were proposed in the action plan, which was not, however, implemented due to lack of funding (para. 25). C. Program Management 1. Disbursement and Procurement

47. The first tranche of $17.4 million (SDR11.7 million) was released on 14 December 1995, the same day as loan effectiveness. The second tranche of $15.9 million (SDR11.7 million) was released on 19 December 1997, about 6 months later than expected at appraisal, largely due to delayed compliance with the second tranche conditions, including privatization. The loan proceeds were fully liquidated by 23 December 1997. No audit report was required since no imprest account was used. Disbursement was based on reimbursements for goods already imported while complying with a negative list (ineligible items). There were no procurement packages or single items that cost more than $5 million. 2. Effectiveness of Technical Assistance a. TA 2457-MON: Institutional Strengthening in the Agriculture Sector

48. The TA aimed to (i) strengthen the institutional capacity of MFA; (ii) implement the new structure of MFA; (iii) formulate an action plan to restructure key institutions in the agriculture sector; and (iv) develop an agricultural research and extension system. The TAs objectives were ambitious; its scope and terms of reference were comprehensive; but its implementation suffered rapid structural changes and frequent staff turnover. Severe budgetary constraints of the Government restricted financing of existing programs or new initiatives. Although the TAs objectives were not fully achieved, it provided valuable inputs to MFA and facilitated the implementation of ASP measures, such as the analysis of four agricultural institutions and preparation of an action plan for agricultural research and extension. The OEM found that the institutional capacity of MFA remained weak, and the TA reports had few readers in MFA, due partly to the oversupply of reports. Overall, the TA is rated partly successful. b. TA 2458-MON: Strengthening Land-Use Policies

49. With an overall objective to assist the Government in establishing a legal and institutional infrastructure for land record management, the TA was to (i) promote the development of a land registration system; (ii) encourage the issuance of land certificates; (iii) develop a compatible legal framework for land registration, land adjudication, and land surveying; (iv) develop environmentally friendly land-use management policies; and (v) develop appropriate systems for zoning and land-use control. While the TA design was overly ambitious, during implementation, TA consultants focused on specific issues of land cadastre and registration. They assisted MNE in developing a legal basis for land registration, provided recommendations on zoning, land-use management, and environmental monitoring, and conducted training for relevant government agencies. Although the TA did not achieve its ambitious goals as designed, it led to the Governments request for a follow-on investment project. The TA was extended by a supplementary grant (footnote 4) and helped prepare a loan

12 project financed by ADB.24 The TA facilitated capacity building in land cadastre, survey, mapping, and registration, and contributed to the enactment of a Cadastre Survey and Land Cadastre Law on 20 December 1999. Overall, the TA is rated successful. III. A. Performance Indicators PROGRAM RESULTS

50. Performance indicators to measure the ASP impacts were not explicitly established in the ASP design, which, however, anticipated that price liberalization would benefit a wide range of producers, especially those in the grain sector, and that annual wheat production would increase by 390,000440,000 t. Implicitly underlying these anticipations was an assumption that wheat farmers faced no constraints other than price control, and that they would fully respond to market signals once prices were liberalized. This assumption was found to be invalid by the OEM. Rather than increasing, wheat production significantly declined (para. 60). B. Impact of Policy Changes

51. Land Reform. The ASP objective of promoting markets in land-use rights has been achieved with the exception of pastureland. With the passing of the revised Land Law in 2002, long-term lease of cropland is now transferable and can legally be used as collateral. As for pastureland, current efforts are directed at formulating long-term lease instruments to be issued to herder groups to encourage proper management of pasturelands. 52. Privatization. As of 2002, all agroprocessing enterprises are owned by private entities except for three meat-processing companies, two cashmere companies, and one flour mill (footnote 15). In spite of their small number, the remaining state-owned agroprocessing enterprises retain significant marketing power, accounting for almost one half of total meat exports, 40% of industrial meat processing capacity, and over a half of cashmere processing capacity. In the crop subsector, all state farms have been privatized with the exception of only one state seed farm. Due to a burgeoning number of private farms, the number of crop farms increased from 67 in 1990 to 1,029 in 2002, including 540 (52%) small farms of less than 200 ha, many of which are family farms. 53. However, the long-term viability of the privatized farms is unclear. Many of the large farms suffer from poor management while the small ones (especially those under new managers) suffer from lack of experience as well as delays in field operations as they do not have equipment and have to borrow it from large farms after the large farms have completed their operations. More seriously, all farms suffer from severe shortages of working capital as at present few commercial banks lend to the agriculture sector. Most farms, especially the large ones, can barely finance field operations due to their heavy reliance on machinery. The financial crisis has trapped wheat farms in a vicious cycle of low input use and low outputs. In conjunction with poor weather in recent years, it is estimated that only about 25% of the wheat farms make a profit, another 25% manage to break even, and the rest are loss makers. 54. Price Liberalization. The ASP was instrumental in a rapid withdrawal of the state from agroprocessing and agricultural production and marketing. In conjunction with other policy reforms that liberalized the trade regime in the country, agricultural prices are largely set by market forces: farmgate prices of wheat are close to world market levels; regional price variations reflect patterns of transport costs in the country.
24

Loan 1736-MON: Cadastral Survey and Land Registration, for $9.9 million, approved on 27 January 2000.

13

55. Extension Services. The ASP intended to establish a cost-effective and efficient agricultural extension system in the country. By its completion, the Agricultural Extension Center had been established but farmers still have no access to extension services as the Center has not been able to provide field-level services due to shortage of staff and funding. 56. There is no easy solution. The Government is restricted by budgetary constraints and cannot finance the full operation of the extension system. The private sector is not interested in providing extension services as there is little demand for fee-based services when farms lack cash to finance even basic field operations. At present, agricultural extension is financed by external funding agencies through temporary projects, which are not a long-term solution. In retrospect, the ASP should have spent more efforts in identifying long-term funding mechanisms for agricultural extension. For example, the associated TAs could have been used to identify and pilot test specific extension services that would have high demand and good potential for cost recovery. Initial capital could have been provided, on a pilot basis, to extension workers to help them establish small businesses of input supply and/or output processing that could generate supplementary revenues to finance their extension services. 57. Agricultural Finance. At the time of ASP design, farms lack of working capital was observed. Recognizing the critical importance of credit to wheat farming, the PPTA consultants proposed inclusion of policy measures to revitalize commercial banking to agriculture. Later, however, ADB decided to leave the financing issues to the upcoming Financial Sector Program (para. 29), and limit ASPs interventions to the conduct of audit of the two banks serving agriculture. While the audit was conducted as planned, it did not revitalize commercial lending to agriculture. Ardyn Bank collapsed and AB moved away from agricultural lending. 58. The absence of commercial lending to agriculture cannot be attributed to a shortage of funds in the country as there are 16 commercial banks and 43 nonbank financial institutions competing for a small market heavily concentrated in Ulaanbaatar. Two major factors have restricted commercial banks interest in agriculture. First, agriculture lending is highly risky as most new farms have no credit records and lack experience in loan management. Due to underinvestment in agriculture in the past 10 years and low crop yields, many farms are only marginally viable. Second, most farms cannot afford high interest charges due to the low profitability of wheat production. In retrospect, the ASP should have included more effective measures to address the underlying concerns of the commercial banks. Incentive schemes such as tax exemption and/or interest compensation (para. 71) could have been pilot-tested to encourage commercial banks serving agriculture. 59. Support for Wheat Production. Support for wheat production was not stated explicitly as an objective in the ASP design, which, however, anticipated that, if wheat prices approached border price levels, further reduction in the cropped area would be prevented and significant production response would enable Mongolia to return to near self-sufficiency in wheat. 60. The above expectations were not met. Although farmgate prices of wheat approached world market levels, the sown areas of wheat continued to decline from its peak of 532,600 ha in 1991 to 348,500 ha in 1995, 301,100 ha in 1998, and 190,000 ha in 2001, with an accumulated reduction of 45% since 1995. Wheat yields declined from their peak of 1.3 t/ha in 1989 to 0.74 t/ha in 1995, 0.64 t/ha in 1998, and remained at the level of 0.60.7 t/ha in 1999 2001. Total wheat production fell from its peak of 687,000 t in 1989 to 256,700 t in 1995, 191,800 t in 1998, and 138,700 t in 2001, or an accumulated reduction of 46% since 1995 (Appendix 1, Table A1.3). Today, domestic production of wheat supports only about one third of domestic consumption, with the rest being covered by imported wheat and flour. In retrospect,

14 the ASP design overestimated the positive impact of price liberalization and underestimated the negative impact of withdrawing state support for wheat farmers. As wheat farming had been heavily subsidized prior to the reforms, a substantial decline in wheat production seemed to be inevitable when state support was terminated. Furthermore, the ASP did not include measures to address the key issue of shortage of working capital, which restricted farmers ability to respond to favorable price signals. C. Institutional Impact

61. At the time of ASP design, the Government did not have experience of a market economy. The appraisal team actively involved senior government officials in the ASP design and enhanced their knowledge and understanding of a market economy. The PPTA consultants worked closely with government counterpart staff and provided hands-on coaching on policy implementation and monitoring. Together with many other TAs provided by ADB and other agencies, the ASP contributed to the improved institutional capacity of MFA, which is now experienced in working with external agencies. However, frequent restructuring of MFA and change of staff undermined staff morale and removed ownership of the ASP from those responsible for ASP implementation. Overall, MFAs institutional capacity remains limited in terms of policy analysis, formulation, implementation, and monitoring. D. Social Impact

62. At appraisal, the PIA estimated that food prices would increase substantially after price liberalization under the ASP, and the number of the poor would increase significantly if mitigation measures were not included. Official statistics show that bread and flour prices rose significantly from 1995 to 1997 but remained relatively stable from 1997 to 2000; meat prices increased sharply in 19951996, were stable in 19971999, and rose again in 2000 after large losses of animals due to the dzud (Appendix 1, Table A1.5). Findings of two living standards measurement surveys conducted in 1995 and 1998 show that poverty remained widespread in the country, and increased by 3.2% in provincial centers, but did not deteriorate further in the rural areas (Appendix 1, Table A1.6). It is difficult, however, to attribute this achievement to the ASP, because most of ASPs social measures were non-ASP operations, which would have occurred without the ASP anyway. Also, poverty in Mongolia was caused mainly by rising unemployment due to privatization in nonagricultural sectors, as well as by deterioration in social services in remote areas; these issues were not addressed by the ASP. Nevertheless, by providing an urgently needed loan of $35 million to the country that was in the midst of a financial crisis, the ASP enabled the Government to finance its poverty-reduction interventions. E. Environmental Impact

63. At appraisal, it was anticipated that policy reforms under the ASP would have no negative impact on the environment. On the contrary, removal of distortions in meat pricing and subsidy on fodder supply would reduce environmental pressure on rangeland and encourage improved management of forage resources. At evaluation, these assumptions have proved invalid. Overgrazing and grassland degradation has increasingly become a major concern in Mongolia as the number of herders more than doubled in the early 1990s and continued to increase up to 2001, since families received free animals during livestock privatization and faced few alternative employment opportunities. The number of animals also increased substantially in response to market opportunities for cashmere.25 While the negative
25

The number of herders increased from 148,000 in 1990 to 390,000 in 1995 and 421,000 in 2001. It fell to 407,000 in 2002 when some herders finally quit livestock production after losing all their animals during the harsh winters.

15 environmental impact was due mainly to livestock privatization conducted before the ASP, a better environmental impact could have been achieved if the ASP had included more active measures than the livestock study, which had only a limited impact due to the lack of follow-up support and funding. F. Overall Sector Performance

64. Overall, the agriculture sector performed well during the ASP period. The growth rates were positive from 1996 to 2000 and higher than national gross domestic product growth in most of the years. Furthermore, the market reforms led to significant adjustment in the sector structure, with a substantial increase in subsectors that had a clear comparative advantage and good market demand, such as livestock.26 In contrast, wheat production declined substantially, in spite of the doubling of farmgate prices of wheat, due largely to an extremely low level of input use leading to low crop yields and low profits. 65. Other factors also affected agriculture sector performance. On the positive side, overall political and economic stability, relatively low inflation, and free trade in the country provided a favorable environment for agricultural development. However, the banking sector crisis in 19971998 further worsened the position of the banks that had traditionally served agriculture, contributing to the lack of agricultural lending. The stagnation of the Russian Federations economy during the late 1990s reduced demand for meat and resulted in its price falling. Russias import tax on meat also added difficulties to Mongolias meat export trade. No less important, Mongolian agriculture continues to be heavily dependent on weather. Drought contributed to low yields of wheat, and severe winters led to substantial animal losses in the last three years. G. Sustainability

66. Sustainability of ASP achievements varies by component. Some of the ASP reforms have been continued due to strong government ownership and commitment, such as privatization and price liberalization. Reforms on land-use rights have continued even if along a more cautious path than originally expected. The sustainability of the agricultural extension system is uncertain due to a lack of reliable funding sources. 67. The OEM observed two major reversals to ASP reform measures. First, in view of the heavy losses of animals due to dzud in the past 3 years, the Government has increased the number of state fodder storage centers from 9 to 22. A GR issued in March 2001 called for increasing the stock of state emergency fodder reserve to 332,000 t in 2001 and 599,000 t in 2005. Second, in view of farmers total lack of access to credit, the Government directed subsidized credit to wheat farms for fuel purchase under its Fallow 2001 program, and sold equipment to selected farms at subsidized prices together with subsidized credit. These measures, to a limited extent, temporarily mitigated the financial constraint of some farmers at the cost of long-term negative impacts (para. 69).

26

Similarly, the number of livestock increased from 25.9 million heads in 1990 to 28.5 million in 1995 and peaked in 1999 at 33.6 million, to drop to 26.1 million in 2001 after heavy losses of animals in the severe winters in 1999 2001 (Appendix 1, Table A1.3). From 1990 to 2000, total production of cashmere increased by 119%; that of hides and skins, by 53%; meat, by 25%; and milk, by 19% (Appendix 1, Table A1.3). During the same period, the export of sheepskin increased by 19 times; goat down tops, by 9 times, and cattle and horse hides, by 7 times (Appendix 1, Table A1.7). These numbers, positive as they seem to be, hide the corresponding decline in the proportion of processed products as the collapse in domestic processing was offset by exports of unprocessed products. The substantial increase in animal production and export was also at the cost of overgrazing and pasture degradation.

16 IV. A. KEY ISSUES FOR THE FUTURE

State Support for Wheat Production

68. The continued and sharp decline of wheat production has caused serious concerns in Mongolia. The increased reliance on imported wheat and flour has led to political concerns over food security. The low input and low output cycle of wheat farming has led to significant financial losses to farmers. In view of the above concerns, the Government has resumed interventions in wheat farming through the SAF, including allocation of subsidized credit for fuel purchase and cheap equipment to selected farms (para. 31). 69. The SAF subsidies have several problems. First, lending is at high risk as credit is allocated to borrowers selected by MFA and local governments without proper loan appraisal and risk analysis.27 As the credit comes from the Government, farmers have less fear of penalties for nonrepayment, especially if the harvest is poor. If farmers fail to repay, however, their bad debt and poor credit record will deny their access to commercial loans in the future when commercial banks resume lending to the agriculture sector. Second, the SAF programs have so far bypassed most small family farms that have not registered as legal entities, a requirement for participation.28 Third, due to limited resources, the SAF has so far financed only fuel purchases, which are a small portion of farms operational needs. Some farms now have credit for fuel but still cannot plant due to lack of money to purchase seeds. Most farms also need credit to buy spare parts or replace machinery as most of their equipment is over 10 years old, and machinery breakdowns during the planting season are a major cause of delayed field operations and low crop yields. Fourth, the authority to allocate subsidized credit may strengthen the power of individual government officials to intervene in farm production and marketing. Finally, allocating subsidies to administratively selected beneficiaries may help inefficient producers and therefore delay the exit of marginal land and inefficient farms from wheat production, a process of sector structural adjustment supported by the ASP, and a necessary step towards sustainable wheat production in the country. 70. While Mongolia as a whole does not have a comparative advantage in wheat production, there are individual farms and areas (especially the north) that have wheat yields high enough to enable financially viable farming. Even under the current difficulties, about one half of the wheat farms have managed to break even or make a profit. It is likely that these farms can become financially viable without long-term government support if their current financial constraints are removed and normal farm operations are resumed.29 The issue is how to quickly shift the currently loss-incurring wheat farming into a viable and sustainable subsector, using market forces to select farms that have the potential to become viable over the long term. 71. A complete withdrawal from wheat production is not acceptable to the Government, which is determined to support a minimal level of wheat production. Instead of leaving this subsector to be distorted by policies with long-term damaging impacts, an alternative is to help the Government select a second-best policy with fewer distortions and high transparency, such as tax exemption to encourage commercial banks to serve agriculture, or guarantee schemes to reduce lending risk. Alternatively, an interest compensation scheme could be pilot27

28 29

AB channels the SAF funds from MFAs account to the accounts of designated borrowers without being involved in the selection of borrowers. MFA selected about 440 borrowers from the 1,029 wheat farms. The Final Report of TA 3686-MON: Crop Production Project provides a financial analysis of wheat production, which shows that, with sufficient financing to replace farm equipment and increase farm inputs, a typical wheat farm of 1,000 ha may shift from a current loss of $1,196 per year to a net profit of $11,799 in year 1 and continued rising of profit in later years, with a financial internal rate of return of 26.9%.

17 tested to provide interest subsidies to commercial banks and flour mills that are willing to finance wheat farming. Instead of using government resources to directly lend to farms, SAF funds could be used to cover a portion of interest charges necessary to encourage agricultural lending. This policy, by reducing lending costs of commercial banks and increasing farms demand for credit even at high market interest rates, has effectively increased commercial lending to agriculture in Ukraine in recent years (Appendix 4). Since this policy encourages commercial banks to use their own resources to lend to agriculture, a small amount of government subsidy can induce a large amount of credit flowing into agriculture. As banks need to select borrowers carefully when they use their own resources, market forces instead of government interventions will select the right farms for public support. Farms selected by banks are more likely to sustain their operations once their financial constraints are released. The objective of establishing a viable and sustainable wheat subsector in the country could therefore be achieved. 72. Temporary subsidies are needed to achieve the long-term objective during this transition period, and a time-bound action plan should be established to gradually phase out such subsidies.30 Supplementary support will also be required to ensure the success of the transition. For example, training should be provided to commercial banks on loan appraisal and risk analysis of agricultural lending, and to farms on business planning, financial management, loan application procedures, document preparation, and credit management. Transparent policies are needed to publicize the Governments policies on promoting agricultural lending, and make the training available to all banks that are willing to serve agriculture. Efforts are also required to develop long-term capacity in the country that can provide advice to both banks and farms whenever needed, including a referral system that recommends good clients to banks. Finally, the lack of access to credit is not the only constraint; other measures are needed to reduce farming risks such as farm integration and diversification. These issues will be addressed by follow-up ADB operations.31 B. Postprivatization Support

73. The ASP focused on farm privatization, price liberalization, and withdrawal of state interventions in agriculture. These reforms per se are not final goals but means to increase sector efficiencies. By allowing market forces to set prices and withdrawing government control over agriculture, the ASP reforms have established necessary but not sufficient conditions for efficient and sustainable wheat farming in the country. Without sufficient postprivatization support to address other factors that have restricted farmers ability to respond to the improved policy environment, the wheat subsector has so far remained inefficient and unsustainable. In retrospect, the ASP design should have given more attention to identifying postprivatization support that need to be provided by follow-up or complementary projects. These projects may explore alternative mechanisms to finance crop farming, provide public investment on agricultural research (especially improvement of seed quality), and train new farm managers on business planning, marketing, farm operations, and credit management.

30

31

Transparency and the time-bound nature are two basic requirements for temporarily justified subsidies. ADBs criteria for subsidies highlight two important policy objectives: (i) subsidies should be made transparent; and (ii) they should be reduced or eliminated in a systematic manner unless they can be explicitly justified (see ADB, Banks Criteria for Subsidies, 1996). ADB is assisting the Government in preparing a crop production project, which will develop mechanisms for viable farming including integrating crop farming with livestock production to reduce farming risks and diversify revenue sources.

18 C. State Emergency Assistance and Fodder Reserves

74. Mongolia lost over 7 million (20%) of livestock due to natural disasters (mainly dzud) in 19992001; the loss has become a major cause of rural poverty.32 In response, the Government issued a GR in March 2001 to instruct the SRA, provincial and district governments, and private herders to prepare for the winter by storing hay and fodder during the summer.33 75. The OEMs discussions with herders found that the current system of state emergency assistanceby keeping a large stock of hay and fodder in the central and local governments warehouses and distributing it to herders in need during or after the dzudis very expensive and largely ineffective. Due to the difficulties in transporting the bulky hay/fodder during or after the dzud, many herders interviewed said that they received nothing from the state during the disaster; and the others said that the help they received was too late and too small to save their animals.34 76. More cost-effective approaches with real impact should be explored. One alternative is to help herders to fully prepare for the winter by building shelters for animals and keeping fodder stock at the household level. The role of the state should be limited to (i) disseminating weather forecasts to herders, including early warnings about the harsh winter based on drought conditions in the summer;35 (ii) organizing seminars and information campaign to educate new herders on the importance of full preparation for the winter; and (iii) requiring district governments and herder groups to examine the preparedness of individual herders within their districts, identify the very poor that need state help, and issue fodder purchasing coupons for them to purchase and store a minimal level of fodder stock.36 The very poor may use the coupons to buy hay/fodder from private suppliers, who will be reimbursed by the Government through the coupon system. Detailed arrangements for implementing this scheme can be developed by MFA, which may bring other factors that need to be considered into the equation. V. A. Overall Assessment CONCLUSIONS

77. Relevance. The ASP aimed to support the transition of Mongolian agriculture to a market-based sector, which was consistent with the development strategy of the Government and operational strategy of ADB both at the time of ASP design and now. The Government actively participated in the ASP design with strong ownership of most reform measures. However, the ASP design was ambitious and overly broad, covering 10 subject areas that relied on many non-ASP activities. Its focus on pushing through policy reforms without sufficient
32

33

34

35

36

Based on a Participatory Living Standards Assessment conducted by the World Bank in 2000, loss of animals to dzud was the second most commonly mentioned trigger of impoverishment by rural communities. The GR called for building up a reserve stock of 331,900 t by the SRA and provincial/district governments as well as 629,900 t by private herders. One woman lost 200 of her 300 animals and received 15 kg of flour in May 2002well after the winter. Some herders received 50 kg of fodder during the winter but the help only prolonged the life of the animals for another few days as the animals had been very weak. Many animals froze to death and could not be saved by state distribution of fodder. Although the Government has good forecast facilities, lack of information was found to be a recurring theme in rural areas by the World Banks 2000 Participatory Living Standards Assessment. While most herders can sell some of their animals to buy fodder for the winter, there are the very poor (herders with less than 50 animals, the size of which is considered unsustainable for animal reproduction) who cannot afford to sell their animals due to the already small size of the herd. The limited state assistance should target this group, either helping them prepare for the winter, or facilitating their orderly exit to alternative employment as appropriate.

19 measures to address the key issue of agricultural financing led to reversal of some reform measures. On balance, the ASP is rated relevant. 78. Efficacy. About 75% of the ASP reform measures were accomplished or substantially accomplished. Farm privatization, price liberalization, and promoting markets for land-use rights were largely achieved. The objectives of ensuring the sustainability of extensive livestock and establishing agricultural extension systems were not achieved, although reforms in these areas set a right direction and generated momentum for continued progress. Finally, the reforms to reduce government interventions in state emergency fodder reserve and to revitalize agricultural financing failed as the ASP did not provide alternative measures to resolve these issues. Overall, the ASP is rated less efficacious. 79. Efficiency. The ASP processing and implementation were largely smooth, with only a 6month delay in the release of the second tranche and no delay in program completion. The ASP involved a large amount of TA resources; it produced many action plans but implemented few due to insufficient follow-up and financial support. On balance, the ASP is rated efficient. 80. Sustainability. The ASP reforms on farm privatization, price liberalization, and land-use rights were largely completed; the reform direction has continued. The primary problem relating to sustainability is two major reversals relating to state emergency fodder reserve and agricultural financing, as the Government has resumed its interventions in these areas since ASP completion. The sustainability of the agricultural extension system is less clear due to a lack of reliable funding sources. Overall, the sustainability of ASP is rated less likely. 81. Institutional Development and Other Impacts. The ASP reforms led to the enactment of a number of GRs and laws, contributing to better policy and regulatory environment for agricultural development. The ASP also contributed to the better capacity of MFA staff that were involved in the design and implementation of ASP reforms. The ASP may have contributed to stabilization of poverty in the country, not so much through its social measures but more through the provision of the $35 million loan to the country when it was in severe financial difficulties. On the other hand, however, the ASP contributed to the continued and sharp decline of wheat outputs in the country and the rising concerns on food security. On balance, the ASPs institutional development and other impacts are rated significant. 82. Based on the above achievements and shortcomings, the ASP is rated partly successful.

83. Performance of the Asian Development Bank and the Government. ADB staff actively encouraged the participation of senior government officials in the ASP design, while the extension of the PPTA strengthened the capacity of government staff to implement ASP reforms. ADBs review missions worked closely with government staff and facilitated smooth implementation. Overall, ADBs performance is rated satisfactory. The Government actively participated in ASP design and showed strong ownership of most reform measures except for credit subsidies and the SEFF, but the ownership was somewhat hampered during implementation by frequent staff changes. The Government implemented the majority of the reform measures as planned, with the above two exceptions. Overall, the Governments performance is rated satisfactory as well. B. 84. Key Lessons Learned The ASP has provided valuable lessons:

20 (i) The initial conditions in a sector determine the positive or negative impact of policy reforms in a transition economy. If a sector was heavily subsidized prior to the reforms, such as the wheat subsector in Mongolia, application of a standard reform package of privatization, price liberalization, and withdrawal of state intervention may lead to sharp decline of sector outputs. Supplementary measures are therefore needed to offset the negative impact of the reforms. A program design that focuses on introducing policy reforms without developing effective measures to address issues underlying government interventions may face the risk of policy reversal after the program completion. Farm privatization and price liberalization are not final goals but a means to achieve sector efficiency. In a capital-intensive subsector such as wheat farming in Mongolia, privatization and price liberalization alone cannot achieve efficiency if other constraints continue to restrict farmers ability to respond to the liberalized prices. It is more efficient if the design of a program focuses on removing a few of the most critical sector constraints so as to enable a full realization of the positive impact of the policy reforms. In the case of the ASP, the broad coverage of 10 policy objectives diluted its focus on key sector issues. The requirement for conducting PIA has the merit of ensuring full awareness of the potential negative impact of the proposed reform measures. The requirement that each program takes care of its social impact, however, may lead to superficial design of social reform measures. Given the focus of program design on policy reforms, it is better if serious poverty-reduction measures are designed as supplementary projects alongside a program instead of within it.

(ii)

(iii)

(iv)

(v)

C.

Follow-Up Actions

85. The following actions are recommended to enhance the sustainability of ASP achievements: (i) MFA should, by March 2003, develop a plan to shift government support for crop farms from direct lending (such as selecting borrowers by MFA and local governments) to alternative mechanisms that are transparent and with fewer distortions. The plan should identify constraints that currently prevent commercial lending to crop farms, and make recommendations as to how lending to the crop subsector can be developed on a commercial and sustainable basis. The Government should, by March 2003, develop a plan to shift its support for emergency assistance to herders from building up fodder stock in central and local government warehouses and distributing it during or after disaster to alternative, more cost-effective mechanisms.

(ii)

STATISTICAL TABLES Table A1.1: Selected Economic and Social Indicators

Indicator GDP (constant 1995 $ million) GDP growth (%, previous year = 100) GDP per capita (constant 1995 $ million) Agriculture, value added (% of GDP) Industry, value added (% of GDP) Services and others, value added (% of GDP) Inflation, consumer prices (annual %) Official exchange rate ($, end of period) Merchandise exports (current $ million) Merchandise imports (current $ million) Trade balance (current $ million) Foreign direct investment, net ($ million) ODA and other official aid (current $ million) Aid per capita (current $) External debt, total (current $ million) Short-term debt (% external debt) Total debt service (% of exports) Labor force (total, '000) Labor force in agriculture (% of total) Labor force in industry (% of total) Unemployment, total (%) Poverty (Official, % of population) Poverty (LSMS, % of population) Population (total, '000) Population growth (annual %) Rural population ('000) Urban population ('000) Fertility rate, total (births per woman) Life expectancy at birth, total (years) Life expectancy at birth, female (years) Life expectancy at birth, male (years) Mortality rate, infant (per 1,000 live births) Public spending on education, total (%) School enrollment, preprimary (% gross) School enrollment, primary (% gross) School enrollment, primary, female (% gross) School enrollment, primary, male (% gross) School enrollment, secondary (% gross) School enrollment, secondary, female (% gross) School enrollment, secondary, male (% gross) School enrollment, tertiary (% gross) 1985 914.2 5.7 478.9 14.4 36.2 49.4 0.6 3.4 689 1,095 (406) 3.3 1.7 1986 999.9 9.4 512.0 16.3 37.7 46.0 (1.0) 3.1 716 1,139 (423) 4.6 2.3 1987 1,034.5 3.5 518.9 14.4 37.9 47.8 0.0 2.8 717 1,104 (387) 3.0 1.5 1988 1,087.4 5.1 535.1 14.6 38.4 47.0 0.0 3.0 739 1,113 (374) 3.1 1.5 1989 1,132.8 4.2 547.5 15.5 38.8 45.7 0.0 3.0 721 963 (242) 6.4 3.1 1990 1991 1992 907.0 (9.5) 416.7 30.2 33.9 35.9 153.8 105.1 388 418 (30) 2.0 122.7 56.4 350 16.9 17.3 1,019 36.5 21.7 6.3 17.7 2,177 1.62 890 1,287 3.6 64 65 62 70 7.1 32 75 77 74 64 72 56 11 1993 879.7 (3.0) 397.9 35.1 32.5 32.4 268.2 396.5 380 361 19 7.7 125.2 56.6 384 3.6 6.2 1,043 39.1 20.3 8.5 17.8 2,211 1.54 891 1,319 1994 899.9 2.3 401.1 36.9 32.6 30.5 87.6 414.1 356 258 98 6.9 182.4 81.3 461 1.2 10.5 1,070 42.8 12.8 8.7 20.2 2,243 1.47 892 1,351 1995 956.7 6.3 420.5 36.8 35.1 28.1 56.8 473.6 473 415 58 9.8 205.6 90.4 526 2.6 10.1 1,094 44.6 13.6 5.4 15.6 36.3 2,275 1.40 892 1,383 3.1 65 66 64 65 6.0 23 88 90 87 59 68 51 15 1996 979.7 2.4 425.2 36.8 24.3 38.8 49.3 693.5 424 451 (27) 15.9 199.8 86.7 531 1.3 10.7 1,118 45.2 13.2 6.5 19.2 2,304 1.28 891 1,413 1997 1,018.9 4.0 437.0 33.5 27.5 39.0 36.6 813.2 452 468 (16) 25.0 246.6 105.8 608 4.5 10.6 1,140 1998 1,054.6 3.5 447.6 32.8 27.6 39.6 9.4 902.0 345 503 (158) 18.9 203.5 86.4 711 4.3 6.2 1,162 1999 1,086.4 3.0 456.8 31.6 29.6 38.8 7.6 1,072.4 336 426 (90) 30.4 218.6 93.4 891 2.6 4.8 1,182 2000 1,026.9 1.1 428.3 33.3 18.5 48.2 11.6 1,076.7 355 550 (195) 30.4 217.4 90.7 859 1.6 4.7 1,202

1,104.2 1,002.2 (2.5) (9.2) 524.3 467.9 15.2 40.6 44.2 0.0 14.0 660 924 (264) 13.1 6.2 14.1 34.2 51.7 40.4 39.4 348 360 (12) 69.2 32.3

882 33.9 18.4 15.0 1,909 2.46 859 1,050 5.0 60 62 59 84 11.7 28 101 102 99 91 95 87 22

900 36.6 16.0

919 35.6 16.2 3.1

935 32.8 15.9 3.7

952 32.0 16.1 3.8

967 32.7 25.2 5.5

994 34.5 22.8 6.5 14.5

7.5 25.8 2,331 1.17 889 1,443 2.9 66 67 64 62 5.7

5.8 28.9 35.6 2,356 1.05 885 1,471

6.4

6.4

1,953 2.27 867 1,086

1,994 2.07 873 1,120 4.8 61 63 60 80 31 99

2,032 1.90 878 1,154

2,069 1.81 881 1,188

2,106 1.76 885 1,221 4.0 63 64 61 73 12.9 39 97 98 96 82 88 77 14

2,142 1.69 888 1,254

2,378 0.94 881 1,497 2.7 67 68 65 58

2,398 0.80 993 1,405 2.6 67 68 65 56

31 100 102 98 90 94 87 20

35 100

37 100

90 94 86 19

88 93 84 17

88 92 84 15

11.3 37 87 89 86 74 80 68 12

6.3 22 75 77 73 63 72 54 12

6.0 22 81 83 79 59 68 50 13

6.4 25 88 91 86 56 65 48 17

Appendix 1

21

GDP = gross domestic product, LSMS = Living Standards Measurement Study, ODA = official development assistance. Sources: World Bank. World Development Indicators 2002. Mongolian National Statistical Office. United Nations Common Country Indicators.

22

Appendix 1

Table A1.2: Privatization in Extensive Livestock Subsector Item 1990 1994 1995 1996 1997 1998 1999 2000 2001

Percentage of Privately Owned Animals (%) Camel Horse Cattle Sheep Goat 16.4 49.0 51.1 24.4 37.1 93.8 94.6 93.6 88.1 96.1 95.1 95.6 94.7 88.9 96.6 95.8 96.4 95.6 89.9 96.9 96.8 97.1 96.5 91.2 97.3 97.2 97.5 97.0 92.8 97.5 97.3 97.9 97.6 94.2 97.8 97.5 98.0 97.8 95.2 98.1 97.7 98.2 98.2 95.9 98.4

Source: Mongolian Statistical Yearbook.

Table A1.3: Agriculture Sector Performance

Item Resources Land Area (million ha) Natural Pastures (million ha) Arable Area (million ha) Cultivated Area ('000 ha) Cereals ('000 ha) Wheat ('000 ha) Changes since 1990 (%, 1990=100%) Potatoes ('000 ha) Vegetables ('000 ha) Fodder ('000 ha) Production Cereals ('000 t) Wheat ('000 t) Changes since 1990 (%, 1990=100%) Potatoes ('000 t) Vegetables ('000 t) Milk and Milk products (million liter) Changes since 1990 (%, 1990=100%) Meat Total ('000 t) Changes since 1990 (%, 1990=100%) Cashmere (t) Changes since 1990 (%, 1990=100%) Camel Wool (t) Sheep Wool ('000 t) Goat hair (t) Hides & Skins ('000 pcs) Changes since 1995 (%, 1995=100%) Yields Cereals (t/ha) Wheat (t/ha) Changes since 1990 (%, 1990=100%) Potatoes (t/ha) Vegetables (t/ha) Livestock (million heads) Changes since 1990 (%, 1990=100%) No. of Camels (million heads) No. of Horses (million heads) No. of Cattle (million heads) No. of Sheep (million heads) No. of Goats (million heads) 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

156.7 1.3 853.6 673.4 530.1 12.6 4.6 147.7 839.1 687.0 156.0 59.5 319.0 240.0

156.7 124.3 1.3 787.7 654.1 532.0 100.0 12.2 3.6 117.8 718.3 596.0 100.0 131.0 41.7 316.0 100.0 248.9 100.0 1,500.0 100.0 2,300.0 19.9

156.7 121.9 1.3 708.1 654.3 532.6 100.1 10.1 2.8 79.9 595.3 538.0 90.3 97.0 23.3 311.0 98.4 281.0 112.9

156.7 117.1 1.3 657.0 592.6 526.3 98.9 8.5 1.9 53.0 493.9 453.0 76.0 79.0 16.4 313.0 99.1 251.0 100.8

156.7 117.1 1.3 546.4 498.1 93.6 8.1 2.1 25.6 479.5 450.0 75.5 75.0 22.7 313.0 99.1 216.0 86.8

156.7 117.1 1.3 470.6 449.1 429.5 80.7 7.8 2.7 11.0 330.7 321.9 54.0 54.0 22.8 312.7 99.0 203.9 81.9 1,000.0 66.7 1,300.0 11.7

156.7 117.1 1.3 372.6 356.5 348.5 65.5 6.2 3.2 6.0 261.4 256.7 43.1 52.0 27.3 369.6 117.0 211.7 85.1 2,101.4 140.1 1,793.5 19.6 1,151.4 7,458.2 100.0 0.73 0.74 65.7 8.4 8.5 28.5 110.0 0.4 2.6 3.3 13.7 8.5

156.7 117.1 1.3 347.8 332.6 324.8 61.1 6.9 3.2 4.3 220.1 215.3 36.1 46.0 23.8 369.8 117.0 260.0 104.5 2,503.4 166.9 1,786.0 19.5 1,448.5 8,426.0 113.0 0.66 0.66 59.2 6.7 7.4 29.4 113.5 0.4 2.8 3.5 13.6 9.1

156.7 127.7 1.2 333.8 316.9 312.2 58.7 6.6 4.3 4.7 240.4 237.7 39.9 54.2 34.0 418.6 132.5 240.5 96.6 2,557.8 170.5 1,700.1 18.3 1,461.6 7,287.1 97.7 0.76 0.76 68.0 8.2 7.9 31.4 121.2 0.4 2.9 3.6 14.2 10.3

156.7 127.8 1.2 326.6 306.9 301.1 56.6 8.1 5.5 4.9 194.9 191.8 32.2 65.1 34.0 430.8 136.3 268.3 107.8 2,874.3 191.6 1,688.2 20.1 490.0 8,629.8 115.7 0.64 0.64 56.9 8.0 6.2 33.0 127.4 0.4 3.1 3.7 14.7 11.1

156.7 129.1 1.2 296.3 279.1 272.9 51.3 8.8 4.8 1.7 169.5 166.6 28.0 63.8 39.0 467.0 147.8 289.0 116.1 3,274.3 218.3 1,626.8 20.9 458.0 9,774.9 131.1 0.61 0.61 54.5 7.3 8.1 33.6 129.7 0.4 3.2 3.8 15.2 11.0

156.7 129.3 1.2 209.3 194.7 191.0 35.9 7.9 5.4 0.8 142.1 138.7 23.3 58.9 44.0 375.6 118.9 310.6 124.8 3,288.1 219.2 1,621.5 21.7 377.4 11,375.8 152.5 0.73 0.73 64.8 7.5 8.1 30.2 116.6 0.3 2.7 3.1 13.9 10.2

156.7 129.3 1.2 199.6 194.0 190.0 35.7 8.6 5.6 1.9 142.2 138.7 23.3 58.0 44.5 277.3 87.8 229.7 92.3 3,060.7 204.0 1,472.4 19.8 351.2 10,898.3 146.1 0.73 0.73 65.2

19.5

18.7

12.7

12.9

1.25 1.30 12.4 12.9 24.8 0.6 2.2 2.7 14.3 5

1.10 1.12 10.7 11.6 25.9 100.0 0.5 2.3 2.9 15.1 5.1

0.91 1.01 90.2 9.6 8.3 25.5 98.5 0.5 2.3 2.8 14.7 5.2

0.83 0.86 76.8 9.3 8.6 25.6 98.8 0.4 2.2 2.8 14.6 5.6

0.88 0.90 80.6 9.3 10.8 25.2 97.3 0.4 2.2 2.7 13.8 6.1

0.74 0.75 66.9 6.9 8.4 26.9 103.9 0.4 2.4 3.0 13.9 7.2

Appendix 1

6.7 7.9 26.1 100.8 0.3 2.2 2.1 11.9 9.6

23

= not available, ha = hectare, pcs = pieces, t = ton. Source: ADB. 1994. Agriculture Sector Study of Mongolia . International Monetary Fund. National Statistical Office.

Table A1.4: Commercial Lending to Agriculture (MNT billion, current prices) Item Total Loans Made by Commercial Banks a of which: to Agriculture Sector Agricultural Lending as % of Total Commercial Lending (%)
a

24

1994 114.6 10.1

1995 138.0 8.1

1996 100.1 4.7

1997 116.7 3.3

1998 108.0 0.4

1999 68.8 0.8

2000 112.1 2.2

2001 259.2 3.2

Appendix 1

8.8

5.9

4.7

2.8

0.4

1.2

2.0

1.2

Agricultural lending does not include lending to agroprocessing industry. Based on interviews with commercial banks, agroprocessing may account for 15-20% of total lending. Source: Bank of Mongolia.

Appendix 1

25

Table A1.5 : Prices of Selected Agricultural Commodities (MNT, Ulaanbaatar market)

Commodity Bread Unit atar Year 1995 1996 1997 1998 1999 2000 1995 1996 1997 1998 1999 2000 1995 1996 1997 1998 1999 2000 1995 1996 1997 1998 1999 2000 Jan 90 140 240 230 240 250 130 210 355 350 319 340 350 600 675 720 670 960 320 550 543 660 590 867 Feb 90 140 240 230 240 250 125 250 370 335 310 344 450 750 710 730 776 1,035 360 700 675 660 750 1,020 Mar 90 140 240 230 240 250 130 250 350 325 305 349 500 700 715 950 830 1,073 520 680 650 930 800 1,066 Apr 90 140 240 230 240 250 130 250 350 325 300 349 480 900 920 1,050 960 1,358 480 850 890 1,190 1,000 1,503 May 90 140 240 230 240 250 130 260 350 325 309 349 750 1,000 995 1,110 1,097 1,452 760 980 1,100 1,205 1,143 1,754 Jun 90 140 240 230 240 250 145 270 374 315 309 349 650 950 1,100 1,070 1,140 1,491 675 960 1,200 1,080 1,200 1,750 Jul 130 150 240 230 240 250 190 280 374 310 309 352 900 900 1,060 990 975 1,306 850 900 1,100 980 1,080 1,388 Aug 130 165 230 230 240 250 190 350 370 310 340 355 750 850 880 880 815 1,022 800 800 840 850 880 977 Sep 130 240 230 240 240 250 190 400 370 310 340 355 700 650 800 750 750 918 750 550 725 655 730 920 Oct 140 240 230 240 240 250 195 350 365 325 340 355 650 650 756 690 705 865 650 550 670 610 660 771 Nov 140 240 230 240 250 250 195 325 365 325 350 355 600 650 680 670 695 881 500 550 610 600 640 804 Dec 140 240 230 240 250 250 195 325 365 325 326 355 600 650 650 700 774 875 500 550 595 620 720 801

Flour Grade 1 kg

Beef

kg

Mutton

kg

atar = standard 650 gram loaf, kg = kilogram.

Annual Changes in Prices of Selected Agricultural Commodities (%, previous year = 100%)
Commodity Bread Year 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 Jan 155.6 171.4 95.8 104.3 104.2 161.5 169.0 98.6 91.1 106.6 171.4 112.5 106.7 93.1 143.3 171.9 98.7 121.5 89.4 146.9 Feb 155.6 171.4 95.8 104.3 104.2 200.0 148.0 90.5 92.5 111.0 166.7 94.7 102.8 106.3 133.4 194.4 96.4 97.8 113.6 136.0 Mar 155.6 171.4 95.8 104.3 104.2 192.3 140.0 92.9 93.8 114.4 140.0 102.1 132.9 87.4 129.3 130.8 95.6 143.1 86.0 133.3 Apr 155.6 171.4 95.8 104.3 104.2 192.3 140.0 92.9 92.3 116.3 187.5 102.2 114.1 91.4 141.5 177.1 104.7 133.7 84.0 150.3 May 155.6 171.4 95.8 104.3 104.2 200.0 134.6 92.9 95.1 112.9 133.3 99.5 111.6 98.8 132.4 128.9 112.2 109.5 94.9 153.5 Jun 155.6 171.4 95.8 104.3 104.2 186.2 138.5 84.2 98.1 112.9 146.2 115.8 97.3 106.5 130.8 142.2 125.0 90.0 111.1 145.8 Jul 115.4 160.0 95.8 104.3 104.2 147.4 133.6 82.9 99.7 113.9 100.0 117.8 93.4 98.5 133.9 105.9 122.2 89.1 110.2 128.5 Aug 126.9 139.4 100.0 104.3 104.2 184.2 105.7 83.8 109.7 104.4 113.3 103.5 100.0 92.6 125.4 100.0 105.0 101.2 103.5 111.0 Sep 184.6 95.8 104.3 100.0 104.2 210.5 92.5 83.8 109.7 104.4 92.9 123.1 93.8 100.0 122.4 73.3 131.8 90.3 111.5 126.0 Oct 171.4 95.8 104.3 100.0 104.2 179.5 104.3 89.0 104.6 104.4 100.0 116.3 91.3 102.2 122.7 84.6 121.8 91.0 108.2 116.8 Nov 171.4 95.8 104.3 104.2 100.0 166.7 112.3 89.0 107.7 101.4 108.3 104.6 98.5 103.7 126.8 110.0 110.9 98.4 106.7 125.6 Dec 171.4 95.8 104.3 104.2 100.0 166.7 112.3 89.0 100.3 108.9 108.3 100.0 107.7 110.6 113.0 110.0 108.2 104.2 116.1 111.3

Flour Grade 1

Beef

Mutton

Source: National Statistical Office.

26

Appendix 1

Table A1.6: Poverty in Mongolia, 1995-1998 (percentage below poverty line) Item National All Urban Ulaanbaatar Provincial capitals All Rural Gini Coefficient 1995 36.3 38.5 35.1 41.9 33.1 0.33 1998 35.6 39.4 34.1 45.1 32.6 0.35

Source: 1995 and 1998 Living Standards Measurement Survey. No poverty data available after 1998.

Table A1.7: Trade in Agriculture

Item Agricultural Exports - Volume Goat Down (raw) Changes since 1990 (1990 = 100% Goat Down tops Changes since 1990 (1990 = 100% Goat Skin Changes since 1990 (1990 = 100% Sheep Skin Changes since 1990 (1990 = 100% Cattle and Horse Hides Changes since 1990 (1990 = 100% Sheep Wool Changes since 1990 (1990 = 100% Camel Wool Changes since 1990 (1990 = 100% Agricultural Exports - Value Goat Down (raw) Goat Down tops Goat Skin Sheep Skin Cattle and Horse Hides Sheep Wool Camel Wool Subtotal as % of Total Exports Agricultural Imports - Volume Wheat Flour Rice Sugar Potato Vegetable Oi Onions and Garlic Fertilizer Tractors and Others Agricultural Imports - Value Wheat Flour Rice Sugar Potato Vegetable Oi Fertilizer Farm Machinery Subtotal as % of Total Imports Balance of Agricultural Trade
= not available, pcs = pieces, t = ton. Source: Mongolian Statistical Yearbook .

Unit

1990

1994

1995

1996

1997

1998

1999

2000

2001

t % t % '000 pcs % '000 pcs % '000 pcs % t % t % $ million $ million $ million $ million $ million $ million $ million $ million % '000 t '000 t '000 t '000 t '000 t '000 t '000 t '000 t '000 t $ million $ million $ million $ million $ million $ million $ million $ million $ million % $ million

376.3 100.0 77.6 100.0 113.2 100.0 130.0 100.0 152.9 100.0 9,202.7 100.0 1,907.3 100.0 16.0 6.8 1.0 1.6 1.1 7.1 8.0 198.8 45.0 0.0 27.7 19.1 41.2 0.8 0.0 47.7 390.0 0.0 5.7 4.9 10.3 0.4 2.3 21.9 122.5 19.8 76.3

252.7 67.2 389.4 501.8 589.2 520.5 2,567.4 1,974.9 481.2 314.7 15,494.5 168.4 2,655.9 139.2 3.7 24.4 2.4 12.8 7.9 15.2 6.0 107.8 29.4 0.1 17.0 1.6 11.2 2.1 0.6 0.9 0.4 269.0 0.0 3.4 0.4 3.4 0.2 0.4 12.1 38.2 10.1 69.6

78.8 20.9 507.3 653.7 361.4 319.3 2,004.3 1,541.8 382.6 250.2 14,917.7 162.1 940.3 49.3 0.4 45.2 1.8 13.5 6.3 10.6 2.2 150.8 28.9 0.0 32.8 8.3 12.3 2.9 1.8 1.8 15.3 109.0 0.0 8.9 2.6 4.3 0.3 1.6 3.1 8.4 87.0 20.9 63.8

431.4 114.6 720.9 929.0 388.0 342.8 1,970.0 1,515.4 331.6 216.9 7,675.3 83.4 1,112.4 58.3 9.2 51.6 2.3 13.8 5.9 7.0 2.2 172.3 40.6 0.0 100.2 7.9 10.9 7.8 1.7 1.3 9.7 0.0 27.2 3.3 4.1 0.9 1.6 2.1 20.1 101.5 22.4 70.8

824.6 219.1 590.4 760.8 416.1 367.6 2,203.6 1,695.1 361.7 236.5 10,713.3 116.4 395.6 20.7 0.0 31.5 2.4 15.2 5.8 9.4 2.0 134.9 29.9 17.3 69.1 7.7 11.6 12.2 0.8 0.8 8.5 5.7 18.1 2.5 4.9 1.2 0.8 1.8 24.3 131.4 28.0 3.5

16.2 4.3 849.8 1,095.1 66.6 58.8 1,892.4 1,455.7 293.4 191.9 5,421.5 58.9 449.6 23.6 0.3 33.0 0.3 13.0 5.0 4.2 1.4 86.7 25.1 46.4 45.3 7.3 17.0 11.8 0.3 2.3 13.2 7.4 10.6 2.3 6.2 1.2 0.3 2.3 8.5 124.6 24.8 (37.9)

799.5 212.5 1,168.3 1,505.6 127.8 112.9 1,984.1 1,526.2 576.2 376.8 8,684.5 94.4 893.3 46.8 14.4 45.9 0.7 13.2 10.1 6.0 1.7 137.3 38.4 18.2 38.2 7.8 16.1 8.9 0.1 2.0 9.0 96.0 3.7 6.1 2.6 4.2 0.8 0.1 1.2 16.2 126.0 24.6 11.3

717.2 190.6 770.2 992.5 110.5 97.6 2,640.0 2,030.8 1,334.8 873.0 5,216.3 56.7 836.8 43.9 21.9 54.5 0.6 15.6 18.2 3.0 1.7 169.8 36.4 92.2 99.8 13.6 22.3 13.2 0.3 2.9 10.5 232.0 17.2 16.9 4.5 5.1 1.3 0.5 1.2 15.5 187.9 30.5 (18.1)

482.6 128.2 850.0 1,095.4 44.4 39.2 2,200.0 1,692.3 662.6 433.4 4,595.6 49.9 723.6 37.9 14.6 59.5 0.3 14.5 9.3 2.8 1.6 134.4 29.5 16.9 79.4 9.3 16.8 20.4 0.3 4.7 12.8 2.6 15.1 2.7 5.1 1.5 0.2 1.6 9.7 147.9 24.0 (13.5)

Appendix 1

27

28

Appendix 2

REFORM MILESTONES AND KEY EVENTS 1988 Reduction in five-year plan performance indices. Decentralization of budgetary operations to local level. Limited liberalization of agricultural pricing and marketing in excess of state orders. Promotion of private sector cooperatives under new Cooperative Law. Introduction of noncommercial togrog/US dollar exchange rate. 1989 Liberalization of intrapublic-sector enterprises pricing and expansion of operating autonomy. Modest easing of restrictions on private herd ownership. Elimination of monopoly of state trading corporations. Increase in selected administered retail prices. Easing of foreign exchange surrender requirements. Introduction of preferential domestic prices for export. 1990 Elimination of restrictions on private ownership of herds. Freeing of selected retail prices. Legalization of two-tiered banking system and establishment of two commercial banks. Rationalization of government ministries; elimination of State Planning Committee. Establishment of Customs Affairs Department and Tax Service Department. Promulgation of new Foreign Investment Law. Devaluation of togrog vis--vis US dollar for commercial transactions. Introduction of restricted foreign exchange auction system. Negotiation of most favored nation trade agreements with countries in the convertible currency area. 1991 Increase in retail prices of most goods. Lengthened maturity structure of term deposits and increased interest rates. Substantial reduction in budgetary subsidy for imported goods and to loss-incurring enterprises. Devaluation of togrog vis--vis US dollar to MNT40/$1. Adjustments to wages, pension benefits, and private savings deposits to mitigate the impact of price increase. Passing of Privatization Law and initiation of program for small privatization. Passing of Banking Law and establishment of Bank of Mongolia as the central bank. Establishment of separate commercial banks.

Appendix 2

29

1992 Further liberalization of prices (except for public services, utility tariffs, public housing rents, selected medicines, flour, bread, and rationed vodka). Elimination of mandatory state orders for exports. Passing of Bankruptcy Law. Partial liberalization of issuance of foreign trading licenses. Introduction of weekly monitoring of budgetary revenues and expenditures. Establishment of a stock exchange. Simplified interbank clearing and payments arrangements. Start of large-scale privatization. 1993 Devaluation of togrog vis--vis US dollar to MNT150/$1. Abolition of state order system for all products destined for both domestic and export markets. Removal of foreign exchange surrender system for all enterprises except the Erdenet Copper Mine, the Mongolsovtsvet, and Gobi Cashmere Wool Plant. Abolition of export registration system. Abolition of dual exchange rate and replacement with unified floating rate (approximately MNT360MNT400/$1). 1994 Passing of Land Law. Launching of National Poverty Alleviation Program. Elimination of export licensing for meat and live animals. 1995 Phasing out of government price controls on principal agricultural commodities. Internal reorganization of the Ministry of Food and Agriculture (MFA). Discontinuation of directed and subsidized credit. Transfer of state-owned enterprises under MFA to the State Property Committee for further privatization. Adoption of Mongolian Environmental Action Plan. 1996 Enactment of State and Local Property Law. Victory of the Coalition of Democratic Parties in the third parliamentary election. Win by the Mongolian Peoples Revolutionary Party of 65% of popular vote in local elections. Further restructuring of MFA and its amalgamation into the Ministry of Agriculture and Industry. Absorption of State Emergency Fodder Fund into State Reserves Agency. Approval of Action Plan for Privatization. Removal of price controls on central heating, electricity, and gasoline. Liquidation of Ardyn Bank and Daatgal Bank, and establishment of Reconstruction Bank and Savings Bank. Establishment of Mongolia Asset Recovery Agency to take over nonperforming loans of closed banks.

30

Appendix 2

1997 Accession of Mongolia to World Trade Organization. Abolishment of most customs duties. Replacement of ban on raw cashmere exports by an export tax. Approval of Green Revolution Program by the Government. Partial privatization of veterinary and breeding services. Adoption of Land Fee Payment Law. 1998 Approval of Cooperatives Law and launching of Cooperatives Development Program. Adoption of Well Rehabilitation Program. Introduction of value-added tax. Reimposition of excise tax on petroleum and export tax on gold and cashmere. 1999 Reintroduction of import duties. Start of restructuring of the Agricultural Bank. Adoption of White Revolution Program. 2000 Recapitalization of the Agricultural Bank. Victory of the Mongolian Peoples Revolutionary Party in the June 2000 elections. Separation of Ministry of Agriculture and Industry into MFA and the Ministry of Industry and Trade. Establishment of National Council for Cooperative Development. 2001 Establishment of Science and Technology Council by MFA to support agricultural research and extension.

POLICY MEASURES AND STATUS OF IMPLEMENTATION

Policy Measures I. I.A Promotion of Competitive Markets Create and Implement an Agriculture Sector Strategy Approval by the Cabinet of a MediumTerm Strategy for Agriculture satisfactory to the Asian Development Bank (ADB). 28 Jun 1995 Accomplished prior to program approval. The current Government has issued policy statements that are consistent with the agreed-upon Strategy. Accomplished The Cabinet adopted the Medium-Term Strategy for Agriculture on 30 May 1995. Partially Accomplished The Cabinet meeting on 30 May 1995 discussed the MediumTerm Strategy; agreed with it in principle; and requested its revisions. In the end, the Strategy was not formally adopted by the Government, although principles were incorporated into the Governments own Rural Policy Guidelines, formally adopted by the Cabinet on 12 June 1995 (No. 35/104). Target Date Status as Reported in the Progress Report of Dec 1997a Status as Reported in the PCR of May 2000b Status at Evaluation May 2002c

I.A.1

I.A.2

Implementation of the Strategy

Dec 1998

The Government, as part of its overall reform, is pursuing the Strategy agreed upon with ADB and its goal of developing a dynamic, growth-oriented, efficient, market-directed and private-sector-led agriculture sector. Cereal production has continued to decline, but the import parity wheat prices for the 1996 harvest have stimulated interest in the crop sector. Farms were able to report profits but average yields, in a climatically difficult

Partially Accomplished The Medium-Term Strategy was to guide the sector over the 19951999 period. While government actions have generally been consistent with the overall direction of the Strategy, there is little ownership of the document, and there have been instances of intervention that have been contrary to the agreed framework. Progress has been substantially less than envisaged in the document.

Partially Accomplished The Governments Rural Policy Guidelines were implemented, which contained elements of the Strategy. However, the Government reintroduced interventions in rural financing and state fodder reserve, which were in conflict with the principles of the Strategy.

a b

ADB. 1997. Progress Report on the Agriculture Sector Program, Progress in Mongolia, Manila. ADB. 2000. Project Completion Report on the Agriculture Sector Program in Mongolia, Manila. c Updated by the Operations Evaluation Mission in May 2002.

Policy Measures

Target Date

Status as Reported in the Progress Report of Dec 1997a 7th year, were still well below sustainable levels. The major immediate problems appear to be management, credit, investment, and organization but surveys have shown that some enterprises are able to achieve sustainable yields. In the extensive livestock sector, the stock has increased to 29.4 million heads in 1996 (a 15% increase over 1991). Herd composition has changed in response to market conditions, with a marked increase in the goat population. In response to production economies, the number of herder families has decreased. There has been a marked increase in the number of small, privately owned agroprocessing enterprises such as flour mills and bakeries.

Status as Reported in the PCR of May 2000b

Status at Evaluation May 2002c

I.B I.B.1

Promote Markets in Land-Use Rights Land Law passed by Parliament and brought into effect. 1 Apr 1995 Accomplished prior to program approval. Accomplished The Land Law was passed by Parliament in April 1995. However, a number of important property rights issues remain unresolved. TA 2458d assisted in clarifying a number of matters, but further initiatives in the legislative and regulatory framework are needed if property rights are to be clearly defined and markets developed in landuse rights. Accomplished The Land Law was passed by the Parliament on 11 November 1994 and became effective on 1 April 1995.

TA 2458-MON: Strengthening Land Use Policies, for $580,000, approved on 5 December 1995.

Policy Measures I.B.2 Issue necessary regulations to implement the Land Law as it applies to the agriculture sector.

Target Date 19 Aug 1995

Status as Reported in the Progress Report of Dec 1997a Accomplished prior to program approval with respect to the 1995 law. However, further changes in laws related to land rights are currently being discussed.

Status as Reported in the PCR of May 2000b Substantially Accomplished While regulations to implement the law were approved by resolution on 19 August 1995 in meeting this condition, there is no land registration system, no transferability of tenure, pasture use rights are illdefined, land cannot be used for collateral, and leases are restrictive. These shortcomings have precluded development of land-use markets.

Status at Evaluation May 2002c Accomplished Regulations to implement the Land Law were issued as required.

I.C I.C.1(a)

Remove Remaining Impediments to Free Pricing of Agricultural Products Issue a government resolution (GR) to prohibit any remaining central and local government impediments to free pricing and distribution of wheat, flour, and flour products. Oct 1995 Accomplished prior to program approval. Substantially Accomplished GR 176 of 25 September 1995, which became effective on 13 October 1995, removed central and local government price controls on wheat, flour, and flour products. This resulted in higher retail prices, particularly for flour and bread, but also higher farmgate prices for crop products. However, structural problems remain in the market, with the Government announcing a minimum price for wheat in 1997, and selling aid wheat in 1998 and 1999 in ways that affect open market prices. Accomplished Government resolution was issued as required.

Policy Measures I.C.1(b) Start monitoring and publishing wheat, flour, and flour product prices.

Target Date Oct 1995

Status as Reported in the Progress Report of Dec 1997a Accomplished prior to program approval, but the information system has been strengthened since with support from TA e 2457.

Status as Reported in the PCR of May 2000b Partially Accomplished The Monitoring and Evaluation Department of the Ministry of Agriculture and Industry (MAI) collects price information on 46 commodities from retail markets across Ulaanbaatar and 21 provinces. Commodities covered include six flour types. Data are collected every two weeks, and disseminated by radio and newspaper. No data are collected on wheat prices. The National Statistical Office (NSO) collects data on bread prices.

Status at Evaluation May 2002c Substantially Accomplished Price data were monitored and published for all commodities except for wheat, since the price of wheat reflected the cost of financing provided by flour mills via forward contracts.

I.C.2(a)

Issue a government resolution to prohibit any remaining central government and local government impediments to free pricing and distribution of meat.

Oct 1995

Accomplished prior to program approval.

Substantially Accomplished GR 176 of 1995 also removed central and local government price controls in the meat market [see I.C.1(a)]. However, structural problems remain in that until August 1999, the Ulaanbaatar and export meat markets were dominated by three large state-owned enterprises (SOEs) that strongly influenced the market price. The privatization of Makhimpex (one of the three) in August 1999 will improve the competitive nature of the market structure.

Accomplished Government resolution was issued as required.

TA 2457-MON: Institutional Strengthening in the Agriculture Sector, for $800,000, approved on 5 December 1995.

Policy Measures I.C.2(b) Start monitoring and publishing meat prices.

Target Date Oct 1995

Status as Reported in the Progress Report of Dec 1997a Continued compliance.

Status as Reported in the PCR of May 2000b Accomplished The Information, Monitoring, and Evaluation Department of MAI collects price information on 46 commodities from retail markets across Ulaanbaatar and 21 provinces. Commodities covered include 12 types of meat. Data are collected every two weeks, and disseminated by radio and newspapers.

Status at Evaluation May 2002c Accomplished Prices of meat were monitored and published as required.

I.D I.D.1

Delimit the Governments Role in Agricultural Markets Government grain and flour purchases to be made at market prices. Sep 1995 Continued compliance. Partially Accomplished Although government purchases of grain and flour are now made at market prices, price formation is impeded by the market power of the large SOEs. Also, the disposal of aid wheat influences the perceived market price for wheat. Accomplished The fodder procurement activities of the SEFF for emergency purposes have been absorbed by the SRA, albeit at a much reduced scale. Fodder procurement by the SRA is at market prices. Accomplished With near-total privatization of flour milling, government purchases and sales of wheat and flour are made at market prices. Disposal of aid wheat was made at preset prices in 19971999, but is now at market prices.

I.D.2(a)

Government fodder procurement under the State Emergency Fodder Fund (SEFF) to be made at market prices.

Oct 1995

Continued compliance. The SEFF has been incorporated into the State Reserve Agency (SRA) and the scale of operations has been greatly reduced from that of the early 1990s to the point where emergency fodder is no longer a major budget item.

Accomplished Government fodder procurement is made at market prices.

Policy Measures I.D.2(b) Limit the role of the SEFF to emergency purposes and make any sales required for stock turnover reasons at market prices.

Target Date Jun 1997 (Second tranche condition)

Status as Reported in the Progress Report of Dec 1997a Accomplished. Stock levels reduced to levels considered necessary for emergency relief. Because of a succession of favorable winters, emergency stocks were not used significantly until 1996/97, when they were exhausted. Stock rotation has been achieved by sales at market prices.

Status as Reported in the PCR of May 2000b Accomplished See I.D.2(a). Stock levels of grain and fodder held by SRA are minimal. Stock turnover or replenishment activities are at market prices.

Status at Evaluation May 2002c Accomplished Emergency reserves expanded substantially in 20012002 in response to animal losses in harsh winters. Government reserves are used for emergency purpose except for sales required for stock turnover, which are made at market prices.

I.E I.E.1

Ensure the Sustainability of the Extensive Livestock Sector Undertake a comprehensive study of technical, socioeconomic, environmental, and marketing issues in the extensive livestock sector and adopt an action plan to implement agreed-upon recommendations. Dec 1997 This has been implemented with support from TA 2602MON: Study of Extensive Livestock Systems, for $600,000, approved by ADB on 4 July 1996. Work started in October 1996, will be completed in December 1997, and the proposed action plan submitted for adoption. Partially Accomplished The study was undertaken with support from TA 2602 during 19961997. An action plan was proposed, but not adopted, and is not being implemented. There is no subsector strategy. Partially Accomplished The study was conducted as required; the action plan was formulated but not adopted due to the Governments budgetary constraints as well as a lack of follow-up financial support from aid agencies.

II.

Institutional Support to Facilitate Competitive Market

II.A
II.A.1

Transfer Government Ownership to the Private Sector

Submit proposals to the State Privatization Commission (SPC) to complete the transfer of government ownership of flour mills and other enterprises still under the control of Ministry of Food and Agriculture (MFA) to the private sector. Sep 1995 Accomplished. The proposals were submitted prior to Program approval. No enterprises are now under the control of MFA (MAI). Under the current Government, responsibility has been transferred to the State Property Committee. These changes delayed privatization, but disposal is now proceeding as fast as is technically possible. Accomplished Proposals for privatization were submitted in 1995. SOEs that were under MFA control were transferred to the State Property Committee. Accomplished Proposals for privatization were submitted to SPC as required.

Policy Measures II.A.2 Complete the transfer of government ownership in at least 70% of the crop farms, and at least 30% of the flour mills and MFAs other agroprocessing enterprises, to the private sector.

Target Date Jun 1997 (Second tranche condition)

Status as Reported in the Progress Report of Dec 1997a

Status as Reported in the PCR of May 2000b Accomplished Sixty-three of 89 state crop farms have been totally privatized. Many of the rest are economically unattractive to potential purchasers. Of the 28 MFA (MAI) agribusiness enterprises listed at loan appraisal, 20 have been privatized, 1 amalgamated, and 1 was auctioned in October 1999.

Status at Evaluation May 2002c Accomplished As of May 2002, only one state seed farm and six agroprocessing enterprises remain under state control.

II.B II.B.1

Revitalize Financial Institutions Servicing the Agriculture Sector Discontinue directed and subsidized credit to the agriculture sector. Sep 1995 Continued compliance. Partially Accomplished Directed and subsidized credit to the agriculture sector has been discontinued from the formal banking sector, except for provision in 1996 of subsidized credit to wheat importers and in 1997 for farm working capital (schemes later rescinded). MAIs Agricultural Development Fund made up of counterpart funds from external aid provides directed and subsidized credit. Largely Unaccomplished Directed and subsidized credit was discontinued in 1995, recurred in 1996 and 1997, and has resumed since 1998. Currently, the Government is providing directed and subsidized credit to wheat farms for purchase of fuel and farm machinery, being financed by the State Agricultural Fund using funds generated from sales of commodity aid from international agencies. Accomplished Audit for the two banks was completed as required.

II.B.2

Audit the loan portfolios of Ardyn Bank and Agriculture Bank as a prelude to a financial sector restructuring program.

Sep 1995

Accomplished prior to program approval.

Accomplished Audits of Ardyn Bank and Agriculture Bank were undertaken as part of TA f 2219. Ardyn Bank was subsequently liquidated in July 1996 and Agriculture Bank restructured, although it is now insolvent and more restructuring is required.

TA 2219-MON: Strengthening of the Commercial Banking System, for $600,000, approved on 5 December 1994.

Policy Measures II.C II.C.1

Target Date

Status as Reported in the Progress Report of Dec 1997a

Status as Reported in the PCR of May 2000b

Status at Evaluation May 2002c

Streamline and Reorientate Public Sector Institutions Internally reorganize MFA to reorient it toward supporting a market-based agriculture sector as mutually agreed upon by the Government and ADB. Oct 1995 Accomplished. Following the change of Government in July 1996, MFA was again reorganized and incorporated under MAI. Later organization changes have emphasized the role of MAI as a policy-making rather than an implementing institution. Substantially Accomplished The first institutional reorganization of MFA was implemented in October 1995. Following the change of Government in July 1996, MFA was again reorganized and incorporated under MAI. While the intent was to separate policy, regulatory, and implementing responsibilities in this new structure, this differentiation is not always followed in practice. Partially Accomplished MFA was reorganized but direct government support of production-oriented activities continued, such as directing subsidized credit to wheat farmers.

II.C.2(a) In relation to MFA, analyze four sector institutions ([i] SEFF; [ii] Aimag Food, Agriculture, and Environment Divisions; [iii] National Center for Gene Production; and [iv] Variety Trials Services) in consultation with ADB to (i) clarify their current objectives, financing, and staffing; (ii) ascertain the effectiveness of each institution; and (iii) agree on time-bound action plans in consultation with ADB for restructuring two of these institutions to support a market-based agriculture sector.

Jun 1997 (Second tranche condition)

Accomplished. Fulfilling the condition became subsumed under the Governments reform program. They have either been abolished and their functions transferred to other institutions more suited to a market environment or completely reorganized in line with program objectives.

Accomplished To a large extent, the restructuring envisaged by this condition became subsumed in the overall institutional restructuring of MFA and MAI. The SEFF became absorbed by SRA, with a reduced role and function. The Aimag Food, Agriculture, and Environment Divisions have been dissolved as separate agriculture departments in each of 21 provinces. The National Breeding Center is now a state-owned enterprise, and the Variety Trials Services functions were transferred to the Crop and Plant Protection Division of MAI.

Accomplished The 4 sector institutions were analyzed as required.

Policy Measures II.C.2(b) Implement the action plan.

Target Date Dec 1998

Status as Reported in the Progress Report of Dec 1997a Accomplished. Agencies only formed late in 1996 and restructured in May 1997. Systems and procedures are still being developed. Accomplished. Extension service has been formed. An action plan, incorporating proposals made by the TA, has been prepared and approved by MAI, together with the budget for 1998. The extension service has arranged commercial contracts with two externally assisted projects and is working with these projects in further refining appropriate methodologies.

Status as Reported in the PCR of May 2000b Accomplished See II.C.2(a)

Status at Evaluation May 2002c Accomplished. The four institutions were restructured.

II.C.3

Develop a cost-effective and efficient program for agricultural research and extension through (i) identifying target groups for extension, which take account of 80% of crop farms; (ii) formulating in detail the extension methodology and message to be implemented in consultation with ADB; (iii) field testing the proposed extension methodology and recommendations in different agroecological zones; (iv) assessing the budgetary cost of implementing the program nationally in consultation with ADB and proposing an agreed-upon time line in the 1997 budget for initial formulation activities; and (v) following consultations with ADB, issuing a multiyear action plan authorized by MFA for implementation of the program. Initiating implementation of the training program for extension workers based on the program developed.

Jun 1997 (Second tranche condition)

Partly Accomplished Although extension services were transferred to the Agriculture Extension Center of MAI and research activities in the institute to the Mongolian National Agricultural University, action plans have been developed (with assistance from TA 2457 [footnote e] and TA 2602g), the extension and research services are acknowledged to be weak. Extension services with MAI are fragmented, understaffed, and do not have adequate budgetary support. Research is poorly coordinated and lacks budgetary support.

Partly Accomplished The program, including action plans for implementing the agricultural research and extension system, was developed under TA 2457 and TA 2602. However, a costeffective and efficient extension system has not been developed.

II.C.4

Dec 1998

Training already commenced.

Partially Accomplished While the Agriculture Extension Center undertakes some training, it is underresourced.

Accomplished. Initial training was conducted.

III. III.A III.A.1

Mitigation of Social and Environmental Concerns Identify and Mitigate Social Impacts Implement the multisectoral mediumterm National Poverty Alleviation Program (NPAP). Jul 1995 Accomplished prior to program approval. Accomplished In June 1994, the comprehensive, six-year multisectoral NPAP was introduced and continues to be effectively implemented. Accomplished NPAP was implemented independently of the Agriculture Sector Program (ASP) and without ASP funding.

TA 2602-MON: Study of Extensive Livestock Production Systems, for $600,000, approved on 4 July 1996.

Policy Measures III.A.2(a) Assess social impact of expected increase in food prices on poor and vulnerable groups, and the consequences of transfer of government ownership to the private sector. III.A.2(b) Submit an annual budget provision for at least MNT680 million for 1996 and 1997 for the Support Fund for LowIncome Groups or similar programs for targeted transfers in cash or in kind for lowest income groups.

Target Date Aug 1995

Status as Reported in the Progress Report of Dec 1997a Accomplished prior to program approval.

Status as Reported in the PCR of May 2000b Accomplished An impact assessment was completed in August 1995.

Status at Evaluation May 2002c Accomplished Poverty Impact Assessment was conducted under the project preparatory technical assistance (PPTA) as part of the ASP design. Substantially Accomplished The assessment of the project completion report (PCR) is supported.

Oct 1995 (Condition for Board approval) Jun 1997 (Second tranche condition) Dec 1997

Accomplished. There is no single budget line for targeted transfers, but documents provided by Ministry of Health and Social Welfare show transfers for low-income groups well in excess of the specified MNT680 million.

Accomplished Although there is no single budget line item for targeted transfers, documents provided by the Ministry of Health and Social Welfare show transfers for low-income groups well in excess of the specified MNT680 million in both years. Accomplished Following the passing of the social insurance law in January 1995, a new social insurance system based on employer and employee contributions was initiated. With support from TA 2252h i and TA 2371 , the system has been considerably improved and now provides five types of social insurance: (i) retirement pension, (ii) sickness benefit, (iii) industrial injury, (iv) unemployment, and (v) health. Contributions are compulsory for all employers and employees. Selfemployed people can opt to join any or all of the schemes with the exception of unemployment.

III.A.2(c) Strengthen the social safety net with particular focus on social insurance.

The system is gradually being strengthened and social insurance has now been separated from social assistance.

Substantially Accomplished Social insurance system has been substantially restructured. However, its coverage is less complete for the herding population and unregistered migrants than for permanent urban residents.

h i

TA 2252-MON: Strengthening Social Insurance, for $84,000, approved on 20 December 1994. TA 2371-MON: Administrative Reform of Social Insurance, for $900,000, approved on 28 July 1995.

Policy Measures III.A.3 Make effective the existing monitoring system to identify the nature and extent of poverty throughout the country and, based on this monitoring system, (i) formulate programs to address identified needs in consultation with ADB, and (ii) submit an annual budgetary provision agreed upon with ADB for 1997 to commence implementation.

Target Date Jun 1997 (Second tranche condition)

Status as Reported in the Progress Report of Dec 1997a Accomplished. With assistance j from ADB under TA 1811 and k TA 2683 , a new household survey has been designed under NSO and is being implemented. Various poverty programs under the Ministry of Health and Social Welfare are under implementation with finance through the budget or directly by funding agencies.

Status as Reported in the PCR of May 2000b Accomplished With assistance from ADB under TA 1811 and TA 2683, a new household survey has been designed under NSO. Two comprehensive living standards measurement surveys have been conducted by NSO: one in 1995 and the second in 1998. The comprehensive NPAP has been implemented from 1994 with finance from the Government and external aid sources. A total of $18.2 million has been committed. Accomplished NPAP has a component for employment promotion through the Local Development Fund. A separate income-generation fund was also established in 1998. In addition, ADB has funded a specific employment k generation project.

Status at Evaluation May 2002c Substantially Accomplished The household survey overlapped the two living standards measurement surveys conducted by NSO. NPAP was funded by other agencies; consultation with ADB was not substantive.

III.A.4

Design and implement programs to promote rural employment.

Dec 1998

NPAP, with assistance from international funding agencies, has started a program of support for microenterprise formation and operation. There are a number of other externally assisted projects aimed toward increasing employment in rural areas.

Partially Accomplished NPAP was implemented independent of ASP. Loan 1290l was approved well ahead of ASP preparation. Its employment generation activities focused in Ulaanbaatar without covering rural areas.

III.B

Identify and Mitigate Environmental Impacts Aug 1995 Accomplished prior to program approval. No new environmental problems have become apparent in the crop sector. Accomplished An initial environmental examination (IEE) of the Program was conducted in September 1995. Accomplished IEE was conducted under the PPTA as part of the ASP design.

III.B.1(a) Assess environmental impact of intensified crop production and reduction in cropped area.

TA 1811-MON: Improving and Strengthening the Statistical System, for $500,000, approved on 22 December 1992. TA 2683-MON: Strengthening the National Poverty Alleviation Program, for $422,000, approved on 7 November 1996. l Loan 1290-MON: Employment Generation Project, for $3 million, approved on 16 December 1993.
k

Policy Measures III.B.1(b) Implement agreed-upon recommendations.

Target Date Dec 1997

Status as Reported in the Progress Report of Dec 1997a Intensified crop production is not currently a problem because very little, if any, fertilizer or pesticide is being used. The Government has set up a National Commission for Regulation of Toxic Chemicals to regulate chemical use. The solution to the problems arising from the reduction in cropped area is dependent on revision of grazing rights and land laws, which the Government is in the process of undertaking.

Status as Reported in the PCR of May 2000b Partially Accomplished A law on protection from toxic chemicals was passed in 1995. GR 83/A/160 of 23 June 1998 classifies agrochemicals by toxicity. However, largely due to budget constraints, the Government has made little progress on implementing other agreed-upon recommendations relating to crop diversification, the need for adaptive research, or raising local awareness about environmental issues. Partially Accomplished The environmental impacts of the increased size of the national herd and changes in ownership have been investigated under a number of studies including TA 2602. However, degradation and overgrazing remain serious environmental issues. Resolution of property rights is needed to resolve these issues, together with extension, but little progress is being made.

Status at Evaluation May 2002c Partially Accomplished PCRs assessment is supported.

III.B.2

Assess environmental impact of the changes in the extensive livestock sector resulting from the transition to a market-based system and adopt an action plan to implement agreed-upon recommendations.

Dec 1997

The impact of changes, especially the increased size of the national herd, is being investigated under a number of studies including TA 2602. However, because of the great sensitivity among herders (and politicians) over the issue of grazing rights, progress can only be made by bringing the concerns of those involved into the decision-making process. Inevitably, this takes time. Although the Government is now in the process of drafting a new law on grazing rights, which represents a major step, progress is likely to be incremental.

Partially Accomplished Environmental impact assessment on the extensive livestock subsector was conducted under TA 2602. Action plan was produced but not adopted due to Governments budgetary constraint and a lack of continued financial support from international agencies.

Sources: ADB. 1995. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grants to Mongolia for the Agriculture Sector Program, Manila; ADB. 2000. Project Completion Report on the Agriculture Sector Program in Mongolia, Manila; and Operations Evaluation Mission estimates in May 2002.

Appendix 4

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INTEREST COMPENSATION FOR COMMERCIAL LENDING TO AGRICULTURE IN UKRAINE1 1. Commercial lending to agriculture has increased dramatically in Ukraine over the last two years. The stimulus for this change was a decision of the Government of Ukraine to replace its intervention in agricultural financing in the form of direct supply of credit to selected farms with a new scheme of interest rate compensation, which was introduced by a resolution of the Cabinet of Ministers in January 2000. 2. The interest compensation scheme operates through commercial banks under the administration of the Department of Agriculture (DA) in provinces. On completion of a loan agreement, a borrower (together with a commercial bank) may apply to DA for partial payment of interest costs by the state under the scheme. Selection of borrowers is made on a first-come first-served basis subject to eligibility criteria relating, among others, to existing enterprise debt structure, land title, level of owners equity in the proposed investment, and the level of compensation requested. The level of interest compensation is limited to a maximum of 70% of the National Bank of Ukraine discount rate in the case of agricultural producers and 50% in the case of other agricultural enterprises. As of October 2001, the discount rate stood at 17%, thereby entitling producers to receive an interest compensation of 11.9% out of a total interest rate of 30 40% being charged by commercial banks. Under this scheme, farmers paid an actual interest rate of about 1828% while the state paid about 12%. Payments are made on a monthly basis in accordance with the interest payment schedule specified in the loan agreement. By the design of the scheme, DA pays the compensation directly to participating banks. To ensure the full amount of compensation received, however, some participating banks require borrowers to pay the full amount of interest first and reimburse borrowers with the compensation amount once the banks receive the compensation from DA. 3. The amount allocated from the state budget for the scheme was Hrv175 million2 in 2000. Due to a delay in implementation and limitations on eligibility of items to be financed, only Hrv50 million was actually disbursed. The budget for 2001 was Hrv150 million, of which Hrv100 million was earmarked for grain production, procurement, and processing enterprises, and Hrv50 million for other agricultural enterprises. 4. In 2000, total credit provided to the agriculture sector amounted to Hrv932 million, of which Hrv818 million (88%) was under the compensation scheme. In the first 8 months of 2001, total lending to agriculture increased by 244% to Hrv3,204 million, of which Hrv2,474 million (77%) was under the compensation scheme.3 The share of agricultural loans in total commercial credit increased from 5.5% in 2000 to 10.3% in 2001; the number of commercial banks participating in the compensation scheme increased from 50 in 2000 to 80 in 2001. 5. The Commission for Agrarian Policy under the President of Ukraine conducted a study of the operation of the compensation scheme for 2000. A total of 4,150 enterprises were supported under the scheme, of which 92% (3,800) were agricultural producers;
1

2 3

Modified from a report prepared by Dr. Inna Chapko, Agricultural Analyst, Commission for Agrarian Policy, Ukraine. The average exchange rate in 2000 was Hrv5.47/US$1. Data from National Bank of Ukraine.

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Appendix 4

another 5% were grain procurement and processing enterprises. In 2000, five commercial banks accounted for 72% of total credit supply under the compensation scheme. 6. Repayment performance in respect of loans disbursed in 2000 varied. The following table indicates repayments made for loans due by 30 November 2000:
Enterprise Type Agricultural Producers Grain Procurement and Grain Processing Sugar Beet Processors Agricultural Consumer Cooperatives Agricultural Service Cooperatives Pork and Poultry Producers Farm Machinery Manufacturers Inputs Suppliers
Source: Commission for Agrarian Policy; Dr. Inna Chapko.

Percentage Repaid 92 72 72 89 100 88 100 100

7. Study on the operation of the scheme for 2001 was conducted for Chirnihiv and Luhansk provinces. In Chirnihiv, 583 enterprises received a total credit of Hrv84 million under this scheme. Agricultural producers accounted for 97% of the recipients and 95% of credit disbursement. Grain procurement and processing enterprises accounted for less than 3% of recipients and 5% of credit disbursement. About 98% of the loans were above 6 months, 55% of 69 months, and 43% above 9 months. Interest rates ranged from 28% to 40%.4 Over 20 commercial banks participating in the scheme in Chirnihiv. In Luhansk, 349 farms applied for credit under this scheme and 324 (93%) received loans. A total of Hrv69 million was disbursed in 2001. Five of the 17 participating banks accounted for 83% of the credit disbursement. Interest rates ranged from 30% to 55%.

With the exception of two loans that had interest rates ranging from 14% to 27%.