Higher food import tax: Farmers hopeful, others concerned

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Raising import tax on food will spike their prices in the local market and shrink their consumption, which would highly support local producers and farmers, stressed the Ministry of Food, Agriculture and Light Industry (MFALI).
In the long run, levying higher tax on imported food is expected to increase jobs in Mongolia and boost the capacity of the local food industry. On top of heightening import duties, the ministry promised to provide financial and technical support to local fruit and vegetable producers.

Parliament plans to review a bill on increasing import tariff on food products from 10 percent to 30 percent. If adopted, this measure would give advantages to local producers, as assessed by experts.

“Reducing the food industry’s reliance on import and supplying the market with locally produced goods are key policies of the government. Domestic production fully satisfies Mongolia’s demands for potato, carrot and yellow beetroot. However, around 70 percent of demands for other types of vegetables and fruits are met through import. To increase cultivation of all vegetables, grains and fruits, the government will issue loans totaling 150 billion MNT to farmers at a three percent annual interest rate. Seeds enough for 700 hectares of land will also be distributed. Farmers and companies should contact their affiliated district agricultural office for details,” said Ts.Bolorchuluun, head of the Agricultural Policy Implementation and Coordination Department at MFALI.

The government plans to fully aid development of winter greenhouses and increase their capacity by 20 hectares. This is estimated to enhance the capacity of greenhouses used during winter twofold.

Ts.Bolorchuluun doubts raising import tariffs would have immediate impact on import volume, local production and farming, and local supply. He says that local supply will steadily increase and imports of some vegetables would eventually cease completely.

According to the ministry, there are 8,688 companies and more than 30,000 individuals farming potatoes and other commonly used vegetables in 156 locations near settlements, soums and provinces. Last year, over 190,000 tons of potatoes and 90,000 tons of vegetables were harvested. Potato harvest is said to have surged by 20 percent and harvest of other vegetables by around 30 percent compared to five years ago. As for vegetables such as tomatoes, cucumbers, squash and green beans, the ministry reported that in 2017, more than 5,000 tons were domestically harvested and 15,000 to 16,000 tons more were imported.

Based on a 2017 survey, Mongolians consume an average of 190,000 tons of vegetables and fruits annually. In the last three years, local farmers were able to supply up to 90,000 tons of vegetables a year, according to MFALI. This means that the rest were imported from other countries. Preliminary estimates indicate that 175,000 tons of potato and 188,000 tons of vegetables (tomatoes, cucumbers and cabbages etc.) will be harvested. This seems to be a fairly optimistic estimation as last year’s potato harvest was 116,800 tons and vegetable harvest was 80,200 tons.

Starting this year, the ministry is planning to raise import duties, invest in agriculture, and provide technical support to farmers. This is expected to help increase harvest by 40 percent and substitute up to 70 percent of imported goods. The ministry says besides these support and aid, all provinces are striving to expand agricultural fields.

Although a number of storages were built with financing from the Chinggis Bond in 2013, many of them are not used for their main purpose and are imposed with high fees, which curbs profit to farmers. To resolve this issue, the ministry has instructed storage owners to offer flexible pricing condition for long-term storage. This is aimed to provide standard storage for domestic production, which is expected to increase in the future.

The biggest speculation regarding the increase of import tax on food is that it will be tilted too much toward enterprises rather than all farmers and small businesses. People are cautious as it could spike prices of imported goods without benefiting the local market if proper procedures aren’t taken.

Domestically produced tomato costs 10,000 to 11,000 MNT per kilogram, while cucumber costs between 9,000 MNT and 10,000 MNT in markets and shopping centers, but imported ones cost half as much. If prices of imported goods still remain lower than locally produced products  after import tax increase and local producers aren’t able to meet demands, these huge investments and measures would become a waste, as speculated by food and trade specialists. Another potential downside is that if the supply side can’t keep up with the demand, it could lead to price inflation.

Is it necessary to hike import duties?

Some agricultural experts and company representatives shared their views on the impact and significance of raising import tariffs on food.

Agricultural specialist of Jargalant soum of Tuv Province S.Enkhbold:

High prices of vegetable seeds are causing challenges for farmers. For example, cabbage seeds for a hectare of land cost 1.2 million to 1.3 million MNT. The amount of seeds imported seems to be decreasing as well. Small devices required to plant seeds are also expensive. There are people who import these devices from China and sell them in Mongolia for double their prices.

Farmers are becoming more interested in growing grains and wheat rather than vegetables because grains are easier to grow.

Our soum has many skilled farmers who are willing to grow vegetables, not to mention we have large open fields. Jargalant soum supplies a third of national potato needs. In short, we can domestically meet demands with adequate seed and technical supplies, real support, and accurate policy. One way to financially support farmers would be to give them a loan with the condition to repay in fall when they earn revenue. There should be incentives and discounts on vegetables seeds just like those given out for grains and wheat. At the moment, there’s no discount for vegetable seeds. 

Director of Erdene Enkh Trade B.Chinbat:

Mongolia domestically meets demands for potato, beetroots, and carrots. We import carrot only from June to July. We’re unable to domestically meet demands of some vegetables. I believe raising food import tax isn’t crucial for Mongolia. If import tax increases, so will the prices of onions, cabbages, and beetroots. The cold and extreme climate makes it difficult to grow onions in Mongolia. It gets cold early and gets warm late here. China sells onions for 1,000 MNT per kilogram in Mongolia but domestically produced onions cost 5,000 to 6,000 MNT per kilogram. Consumers would prefer to buy the cheaper ones.

Vegetable prices need to be maintained year-round. Only those able to get loans have cold storage, but they aren’t able to fill them up. Some try to preserve their goods for longer time so that they can sell it for higher prices but oftentimes, it only piles up their debt.

Another challenge is the fact that only few are willing to work in the countryside. Since the soil quality is degrading, we’re using more and more fertilizers. Overall, I doubt we’ll be able to fully satisfy domestic vegetable needs.

Agricultural Head of Selenge Province Mayor’s Office B.Munkhtur:

Selenge Province is preparing to plant wheat in 144,000 hectares of field, barley in 1,200 hectares, wholegrain in 3,000 hectares, other types of grain in 3,287 hectares, feed plants in 12,000 hectares, oil plants in 21,000 hectares, potato in 2,495 hectares, and vegetables in 2,620 hectares of land. A total of 191,000 hectares of land will be used for agriculture.

In connection with increasing cases of COVID-19, our provincial mayor is encouraging families to grow adequate vegetables for their own needs.

Regarding the decision to levy higher food import tax, I believe it is a very timely and good step for increasing supplies of grains, vegetables and fruits. I think that it would achieve better results if loans become more accessible and are distributed fairly.

Selenge residents have good experience and land for engaging in agriculture. All we lack is money, seeds and fertilizers. By supporting households engaged in agriculture, we’ll be able to locally meet demands. We must pay extra attention to the sales of new harvests. There’s imperative need to create conditions for storing vegetables for a whole year, maintain prices stable, and increase storages.

How are imported goods supervised?

All importing companies are required to renew their information and list of correspondent foreign companies every six months at the General Agency of Specialized Inspection (GASI). All goods crossing the border undergo routine inspection and tests, and if any fails, it is returned, according to the agency. On average, four to five percent of imported vegetables and fruits are returned due to issues such as insects and pests.

Inspectors noted that the logistics, transportation and storage of food products have improved over the years.

“Most consumers misunderstand that imported food is harmful to health but that is false. We strictly follow standards and regulations and only allow products that have been certified in their own country to enter Mongolia,” said B.Tuya, senior inspector of GASI. “A few years back, food products used to be transported through Zamiin-Uud border checkpoint in UAZ-469 (off-road military light utility vehicle) but that has changed. Now, standard vehicles with coolers and full covers are transporting goods.”

GASI assured that it is constantly regulating the quality and safety of all food products sold in the market. Every year, it conducts a nationwide three-stage inspection. Last year, over 50 types of 3,614 goods were tested and 47 of them (1.6 percent) had failed to meet the standard. This included the detection of plant diseases in potatoes, tomatoes and cucumbers, and infection of pests and insects in onions and cabbages. The amount of nitrite in some onions imported from China, locally grown watermelon, carrots and pumpkins exceeded the maximum permissible level. However, the key food security indicator pesticide was within the permissible limit in all locally farmed and imported vegetables, as shown by the inspection.

The inspection also oversaw operations of food storages. Out of 104 storages inspected, 76.6 percent met the standard. Most violations were connected to underground storages as they don’t have standard ventilation.

Overall, Mongolia continues to strengthen its supervision for food security. But the initiative to heighten taxes on food imports raises concerns for potential price inflation and shortage of supplies as more than 70 percent of all vegetable and fruit demands are imported. On the other hand, the success of this initiative is unmeasurable and could fruit many opportunities for the country. For example, if the food tax and agricultural loans are properly enforced, it will not only increase the revenue of local farmers but also reduce Mongolia's dependency on imports, drastically improve the economy, and boost agricultural development. However, both the government and the public must work together to prevent it from going astray.

Dulguun Bayarsaikhan