Publication: Eurasia Daily Monitor Volume: 5 Issue: 76

While the Mongolian People’s Republic shed its socialist Communist political straitjacket in 1990, the Mongolian “ulus” (nation) has remained divided by geography as a part of the new “Great Game,” with independent Mongolia remaining heavily under Russian influence, while the Peoples Republic of China retains control over Inner Mongolia. Russia is Mongolia’s largest trading partner after China, but influence is better than subservience, a political reality that brought Mongolia’s Prime Minister Sanjaa Bayar to Moscow on April 10 for a three-day official visit to conclude a number of bilateral agreements. Bayar met with Russian Prime Minister Victor Zubkov, and perhaps equally important, Minister of Agriculture Aleksei Gordeev, who is also the chairman of the Russian- Mongolian intergovernmental commission.

Bayar had a full agenda, from mining agreements to student exchanges, as well as arrangements for Russian assistance in upgrading the Mongolian armed forces. But Bayar’s most immediate priority was to secure Russian assistance to cope with the country’s burgeoning food shortages.

Russia has great hope for expanding its operations in Mongolia. Following his meetings with Bayar, Zubkov noted that annual bilateral Russian-Mongolian trade was predicted to rise to $1 billion over the next few years (RosBusinessConsulting, April 11).

Bayar held a press conference at Ulaan Baatar’s Chinggis Khaan international airport upon his return, elaborating on the success of his visit. Among the accomplishments were agreements on further Russian investment in the Ulaanbaatar Railways, cooperation in uranium production, and student exchanges (Mongoliin medee 87/2374,; April 21).

The most significant accomplishment of Bayar’s visit, however, was a Russian agreement to supply Mongolia immediately with 100,000 tons of wheat on preferential terms. Underlining the sensitivity of the issue of food price inflation, a reporter told Bayar, “The bread price rose when you weren’t here. When will wheat be imported?” to which the Prime Minister replied that “100 thousand tons of wheat will be imported immediately.” He added defensively, “The price of goods and products has risen not only in our country but also in Russia.”

As in many other parts of the world, soaring food prices are attracting government attention. According to the government’s Unfair Competition Monitoring Agency, food producers and speculators are helping to fuel price inflation. Since April 12 the price of a loaf of bread has increased by 18 to 20 cents, a substantial price rise in a country where the minimum wage is $77 a month, and since the beginning of the year increased fuel prices have driven up the cost of flour by 40.8 percent in rural areas and 37.9 percent in Ulaan Baatar, with meat price increasing correspondingly by 23.9 and 35.7 percent (Montsame, April 19). In response, the government has established a price commission, which met on April 21 to consider its options to rein in prices.

Earlier this year the World Bank reported that that Mongolia’s 2007 GDP growth rate was 9.9 percent, with growth being driven by increases in agriculture and services. Driving the government’s strong revenue performance were commodity prices higher than anticipated and the imposition of a windfall tax on gold and copper exports; strong economic growth; and improved revenue administration, which enabled the government to build additional reserves at the Bank of Mongolia of about $169 million. This left government deposits at the central bank at $531 million by the end of the year. The downbeat news was that last year inflation, driven primarily by rising food prices, reached 15.1 percent, its highest level in a decade (Mongolia Quarterly, World Bank, January 28). The report noted that Mongolia imported the majority of food, cereal and oil from Russia and that “more than two-thirds of 2007’s inflation in Mongolia can be explained by food items, while oil prices contributed only a negligible portion.”

The proffered assistance came just in the nick of time, as according to official sources, the Farming Support Fund and the state reserves had dwindled to a total of 6,000 tons of wheat, forcing the Ulaanbaatar Flour Company to stop production. In a grim scenario, the Ministry of Food and Agriculture reported that the shortage would likely force other flourmills to follow suit, as government calculations have determined that the nation requires 17.5 thousand tons of flour a month to meet its requirements, which have been met since December 2007 by importing and producing 51.5 thousand tons of flour (Montsame, April 17).

The issue has become a political hot potato; already this month, the price of bread has increased by as much as 50 percent, the cost of a 55-pound bag of flour, which in January cost $7.70, is now selling for $21.40. Ambitious politicians have appeared on television to exploit the situation to their political advantage in the run-up to the country’s parliamentary election scheduled for late June. One Mongolian People’s Revolutionary Party (MPRP) leader has said that the rise in bread prices was unfounded, because the government had cut the customs tax and VAT on 40,000 tons of flour in February to keep the price at 47 cents per kilogram (#5638,, April 18). Perhaps most ominously for authorities, on April 18, 20,000 Mongolians demonstrated in Ulaan Baatar over rising food costs

Mongolia cannot expect Russian fiscal altruism to continue indefinitely. Despite the wheat subsidies, Moscow is gradually increasing prices on a number of other Russian imports. The Mongolian media has reported that the country’s civil aviation industry, like its Western counterparts, is facing disruptions due to soaring fuel costs. Mongolian airlines imports its fuel from Russia, which has drastically increased the price of its aviation fuel exports from $137 to $225 per ton over the last six months (Edriin Sonin, April 21).

While Moscow’s and Ulaan Baatar’s leaders congratulate themselves on their political acumen, the country’s food crisis has been postponed, not solved, and they would due well to remember that Lenin toppled the Romanov dynasty in 1917 with the slogan, “land, peace and bread.”