DEVELOPING CLUSTERS IN BUTCHERY INDUSTRY,

MAIN COURSES
J.Gerelmaa
E-mail:j_ge@yahoo.com
Introduction
Mongolian beef industry is one of the worlds few remaining nomadic husbandry with great significance in
nations economy and society. Over the years, meat price, quality, export, overgrazing and many other
problems are concerning businessmen as well as the public. Moreover, the number of scientists and
entrepreneurs discussing the need of introducing the Cluster management system which covers the necessity
of increasing competitiveness internationally and forming an organized market in the meat industry is
rapidly increasing. Therefore, this theme was chosen in order to scientifically determine alternative ways in
developing Cluster system and the advantages of approaching the system.
Keyword
Cluster, meat, agriculture, husbandry, management, market, production, population, development, supply,
price.industry
Summary
Cluster can be in many types of formation; however, corporation agreements, sole trader, partnership,
merging, association and foundation are dominating. For agriculture in district level, cooperation is the most
suitable managing Strategy as Mongolian government strategy, concerning agriculture, is promoting
cooperative industry in recent years and income tax is being lifted. Therefore, cooperation is more effective
in our current economy.
Introducing Cluster system to Mongolian meat producers will be advantageous and considering raw
material, resource, population and market location Cluster system based on the primary sector of industry,
Cluster system based on market have higher possibility of success. To be more specific:
Regarding reports of 2013 from Land Affairs, Geodesy and Cartography, Mongolian Pasture been 112.7
hectares is by 0.3 hectare which is 0.3% less than previous years and by 9.4 hectares which is 7.7% less than
in 1964. In other words, pasture area is steadily decreasing in the past years. As shown in survey by
Meteorology and Environmental Monitoring, water surface area has declined by 38%, unvegetated area has
increased by 46% and forest region has decreased by 33%.

In 1992 In 2012

Source., MEM, Decrease in pasture area

Graph 1. Change in Mongolian pasture

Effect of climate change on pasture is shown by body weight of grazing livestock as follows:

0.86
5

0.14
0.08
122.1
0
2020 2050 2080

-1.78
-5

-3.09
-3.7
-4.98
-10

-9.03
113 113 112.7 112.7

-12.41
-15

-14.06
-15.24
-20

1967 2010 2011 2013 2014

Graph 2. Total area of Mongolian Graph 3. Regarding results from HADCM3 change
pasture /million hectare/ in weight of sheep in winter, fall ,%/

Surveys show that in 2050 weight pf livestock will decrease by 3.7-5%. In other words, estimated with
current number of livestock, depending on climate change meat production will decline by 8-9 thousand
tons.

100 85 76 76 76 67.3 75 74.7 86.2

74
49.3 54.8 60.2
50

0
1967 2010 2011 2012 2013 2014

. . .

Source. NSO statistics, the Ministry of Agriculture

Graph 4. Pasture capability, livestock number ratio (million .capita)

Pasture capability is estimated by the ratio between harvest from 1 hectare and hay for 1 sheep per day. This
shows 74 million sheep can graze in current condition. However, 86.2 million sheep have grazed in 2014,
converting all livestock to sheep. This indicates that pasture capability was exceeded by 17%. This can lead
to decrease in pasture capacity year by year.
Compared to last more than 60 years, the number of livestock lost due to natural disasters and change in total
number of livestock in the last 10 years have increased 3-20 times.
99% of meat in Mongolia is produced from traditional Mongolian livestock. 5 types of meat from 5 different
livestock has their own taste, quality and medical importance; however, they can substitute for each other.
Even though substitution is possible, consumers with specific aims are conventional to deciding.
Determining the amount of meat production by meat type and market share will increase oriented market
quality and develop trading strategies.

In 1989 In 2014
 camel camel horse
2.26% horse 0.63% 5.05%
8.91% cattle
goat 5.90%
20.10% cattle goat
10.91% 44.64%
sheep
43.78%
sheep
57.81%

Source: Number of livestock ,

Graph 5. Dividing total number of livestock in 5 main types (%-)

The slaughtering weight, meat yield and taste are different depending on pasture quality, animal breeds,
species and the age. In this study, meat production is calculated on meat yield for agricultural use and body
weight norms are used. Meat production is based on survey in 2014 and the number of male in the herd ae
calculated based on statistics from previous years.

Camel Horse Cattle Sheep Goat Total

Number of livestock /thousand/ 349 2,996 3,414 23,215 22,009 51,983
Percentage of each type in herd % 33% 33% 16% 24% 29%
Number of each type in herd 115 986 550 5,664 6,339
Livestock for meat supply % 25% 50% 80% 80% 90%
Number of livestock for meat 29 493 440 4,532 5,705
supply
Slaughter weight /kg/ 325 180 265 41 33
Total slaughter weight /kg/ 9,329 88,712 116,659 185,794 188,256
Meat yield % 41% 43% 41% 42% 38%
Amount of meat production /ton/ 3,825 38,057 47,830 78,034 71,537 235,458
Percentage in total meat production 2% 16% 20% 33% 30%
%
The study shows that 30% of the total meat production is chevon, 33% is mutton, 205 is beef and 16% is
horse beef. Therefore, we can see that main meat source is sheep and goat. Market research for meat supply
in foreign country should be set in a way as shown. When we are speaking of meat export, we rarely
consider the type of meat, how much should be exported and whether the standards are met or not.
By the meat production study 3,8 thousand ton camel meat, 38 thousand ton horse beef, 47 thousand ton
beef, 78 thousand ton mutton and 71 thousand ton chevon is produced. However, there are no formal
registration of how much calorie each type of meat contains. This is a very important and useful information
for planning to meet the market demand.
Current status of meat imports. According to statistics, in 2014 1,9 ton pork was imported which is 72%
more than 4 years ago. Also, in 2014 8,8 ton chicken and poultry meat was imported which has increased by
47% compared to import in 2011.
In 2013 more than 70 ton of beef and mutton were imported and in 2014 import of smoked meat increased to
58,5 thousand ton while import of frozen beef sharply decreased.
 5 323,100
, 5.05 , 247,000
3.05 64,500 10,300 15,537,400
1.75 2014 2013 15,870,800
1.7 12,498,300
1.23 7,372,700

, 17.03 , 17,400 2014 2013

14.51 104,500
2.52 5,001,100
4,606,600
2.8
2.97 3,414,700 5,016,400
5
20.46
3.91 276,700
18.66 23,600
18.99 77,800
19.42 217,700
17.11 263,600
0 5 10 15 20 25 0 10,000,000 20,000,000

Graph 6. Cost of imported meat per unit Graph 7.Cost of imported meat
The data above suggests that in 2014 the revenue from meat export is 3,5 times less than expense from meat
import. In other words meat production in foreign country is having a sales deficit.
Present level of meat consumption. Mongolian consumes 80-95% of total meat production. When the total
meat produced is compared to total population, it shows that a person eats 92.6 kg meat per year in rural area
and 88,8 kg meat per year in urban area.

120
90
67
35 38 30

Source.
Graph 8. Meat product per person internationally /kg/year/
Approved by the Minister of Health in December, 12th 2008, the order population physiological nutrition
norm states a person should consume 6 kg per month in winter session which is total of 54 kg and 4,5 kg
per month in summer season which is a total of 13,5 kg; this means a person should consume 67,5 kg meat
per year. Therefore, on meat consumption Mongolia is considered to consume more than most developing
countries and some developed countries. While it is 90-100 kg per year in Mongolia, meat consumption per
year in the world is 38 kg, in Asia 25kg, in developing countries it is 15-28 kg.
According to the last 10 years, linear regression calculated by GDP per capita and meat consumption per
capita, statistical relationship between the 2 factors were not useful and unreliable.

Y = 106.133 - 0.007312*x R-squared= 0.285

t-Statistic 24.976 -1.893
- Meat consumption per capita - GDP per capita
Most of Mongolian meat consumption consist of meat produces in a traditional not standard form, on the
other hand, most Mongolian households are more concerned about economic situation than healthy diet.

Y = 72.254 + 0.308*x R-squared= 0.595

 t-Statistic 9.381 3.638
- Meat consumption per capita - Meat production per capita
All factors estimated were statistically reliable. This is proof that the meat consumption is dependent on
relevant meteorological meat consumption of Mongolians.
Future market trends. In recent years, increase in meat price is creating beneficial condition for herders
and meat producers. This is an important change could also raise interest in livestock meat. Herders raise
livestock, first of all, depending on adaptability on pastures, second, depending on type of livestock,
profitability. Therefore, livestock based raw material and commodity price levels are the main factors
affecting the growth in number of livestock.

4000000 3441144 3531996 3665017

3192856 3345977
2915044 3028579
3000000
2000000
1000000
0

Source. NSO, number of decline in birth rate.

Graph 9. Mongolian population in 2030

For meat producers there are 2 ways of market growth. Its total market size or population, total Gross
Domestic Product or meat consumption and the price payed for them are like to increase.

2nd Table

Determining meat supply demanded by the population

Meat demand n
domestic market
Year Population 65 kg 85 kg
per per
year year
189 247
2015 2 915 044 477 778
860 740
193 252
2016 2 972 092 185 627
980 820
196 257
2017 3 028 579 857 429
635 215
200 262
2018 3 084 319 480 167
735 115
2019 3 139 139 204 266
044 826
 035 815
207 271
2020 3 192 856 535 392
640 760
210 275
2021 3 245 304 944 850
760 840
220 288
2022 3 394 197 622 506
805 745
217 284
2023 3 345 977 488 408
505 045
214 280
2024 3 296 359 263 190
335 515
223 292
2025 3 441 144 674 497
360 240
226 296
2026 3 486 997 654 394
805 745
229 300
2027 3 531 996 579 219
740 660
232 303
2028 3 576 458 469 998
770 930
235 307
2029 3 620 710 346 760
150 350
238 311
2030 3 665 017 226 526
105 445

Source. NSO, researchers estimate

As today, Mongolia has officially 3 million people. Domestic meat demand is fully provided. Statistics of 10
years made by the NSO, comparing rural population and urban population, shows that Mongolian average
annual population is almost equal to 1,46% the average annual population of the world.
In 2030 the population will reach 3,66 million and meat demand will increase by 55-65 thousand ton. In
other words, targeting increase in export as long-term strategy will be ineffective considering the state of
supply of meat and increase in demand. In long-term, rather than focusing on export, domestic increase in
demand should be provided.
75% of meat supply from herders are reaching users through middleman without processing. The other 25%
is distributed to butchers in autumn and summer and then the meat is stored. While storing 300-500 cattle or
horses are called 1 base, while 1000 sheep or goat is made 1 base. 1400 animals which are 1 base are herd by
5-6 herders and in 2015 daily 10,000-15,000 is payed to one herder, then daily expense will be 35,000-
60,000. However, nationwide total of 1400 bases are herd which will cost 66,500,000 as wage for
herders.
As sub cities Darkhan and Erdenet have many department stores and are more industries and developed than
province center, however, population does not exceed 70-80 thousand people.

Table 3

Estimated interaction of produced meat and market

Livestoc
k Populati Meat
Province Industry Excess
populati on demand
on
1,883,61 7,940,48
Bayan-Olgii 93,165 8,384,850 (444,361)
0 9
2,611,11 9,172,98
Govi-Altai 56,698 5,102,820 4,070,165
0 5
2,895,88 12,143,5
Zavhan 69,632 6,266,880 5,876,659
6 39
2,561,31 10,496,9
Uvs 75,737 6,816,330 3,680,634
5 64
2,625,57 10,626,0
Khovd 81,479 7,333,110 3,292,915
7 25
4,030,94 22,475,8 14,115,22
Arkhangai 92,896 8,360,640
4 67 7
Bayankhong 3,465,86 13,924,2
82,884 7,459,560 6,464,661
or 4 21
3,132,78 16,212,6 10,783,46
Bulgan 60,324 5,429,160
6 27 7
Ovorkhanga 4,111,51 17,752,6 10,133,19
112,591 7,619,475
i 5 65 0
4,157,22 19,043,8 11,342,61
Khuvsgul 126,029 7,701,207
3 17 0
(7,610,89
Orkhon 123,202 732,553 92,705 8,343,450
7)
1,686,79 7,752,15
Dornogobi 63,492 5,714,280 2,037,875
3 5
2,435,73 9,118,29
Dundgobi 44,207 3,978,630 5,139,660
9 0
1,849,04 7,343,15
Umnugobi 59,665 5,369,850 1,973,307
3 7
7,987,44 (1,485,32
Selenge 1,471,68 105,253 9,472,770
3 7)
4,181,51 20,711,6 12,607,28
Tuv 90,049 8,104,410
0 97 7
1,752,32 (7,008,45
Darkhan-uul 324,241 97,342 8,760,780
1 9)
1,296,60
Gobisumber 339,438 15,891 1,430,190 (133,587)
3
1,393,44 8,702,31
Dornod 74,923 6,743,070 1,959,241
7 1
2,818,18 14,170,0
Sukhbaatar 57,414 5,167,260 9,002,822
1 82
3,268,82 15,738,5
Khentii 71,065 6,395,850 9,342,689
6 39
2,658,44 1,314,48 118,303,7
Ulaanbaatar 385,364 (115,645,293)
7 6 40

Source. NSO data, expert compilations and calculations

Comparing meat production and meat consumption, it is shown that meat supply directs to only 1
major city.
Study shows that every province except Bayan-Olgii and Selenge ship meat to 3 major cities,
Ulaanbaatar, Darkhan and Orkhon. In other words, meat supply flow is directed to 3 cities in central
Mongolia and it takes at most 2000 km and at least 50 km to reach market.

-
3% 3%
2%
- 0% 0%
-6%
2% 3%

3%

3% -
2%
0%

45%
4% -5%
4%


3%
2%
2% 2%

3% -
2% 3% 3% 4% -89%

Graph 10. Production and Consumption comparization

Meat consumption was estimated as urban citizen consumption. Meat consumption is distinguished
between winter and summer.
 Table 4

Meat supply to warehouse, necessity for meat storage /thousand.ton/

Month
Readings 1 2 3 4 5 6 7 8 9 10 11 12 Total
Meat demand 10,5 10,5 9,2 7,8 7,8 7,8 7,8 7,9 7,9 10,5 11,8 11,8 111,7
Meat supply 0,1 0,1 0,05 0,1 0,3 1,2 1,5 3,1 25,2 30,9 49,0 111,7
Warehouse supply (10,4) (10,4) (9,1)(7,9)(7,9)(7,5)(6,6) (6,4) (4,8)
Size of storage 14,7 19,1 37,2 71,0

Source. NSO
14,000 60,000
11,830 11,830
12,000 10,516 10,516 10,516 50,000
10,000 9,201
49,043 40,000
7,887 7,887 7,887 7,887 7,887 7,887
8,000
30,916 30,000
6,000 25,246
20,000
4,000
2,000 10,000

- 100 100 50 100 345 1,245 1,468 3,118 -

1 2 3 4 5 6 7 8 9 10 11 12

// ,

Graph 11.meat demand and supply are shown in monthly terms.

Research shows that during October, November and December the meat supply reaches its peak and
71 thousand ton meat is stored to supply citizens in future. This means 80% of meat consumed
through out the year should be stored in October and December.
As meat supply and storage are focused in few major cities, central province and urban areas, this
survey will show whether there are enough warehouses in rural areas and determine capacity.

Table 5

Power demand for cold chain and the current capacity (ton)
Stored for
Excess Warehouse
Province Industry Demand domestic
/ton/ storage /ton/
use
Bayan-Olgii 7,940 8,384 1,543 (444) 2,150
Gobi-Altai 9,172 5,102 939 4,070
Zavhan 12,143 6,266 1,153 5,876 2,000
Uvs 10,496 6,816 1,254 3,680 1,250
Khovd 10,626 7,333 1,349 3,292 515
Arkhangai 22,475 8,360 1,538 14,115 500
Bayankhongor 13,924 7,459 1,372 6,464
Bulgan 16,212 5,429 999 10,783 500
 Uvurkhangai 17,752 10,133 1,864 7,619 1,000
Khuvsgul 19,043 11,342 2,087 7,701 1,000
Orkhon 0,7 8,343 8,343 (7,610) 4,000
Dornogobi 7,752 5,714 1,051 2,037
Dundgobi 9,118 3,978 732 5,139
Umnugobi 7,343 5,369 988 1,973
SElenge 7,987 9,472 1,743 (1,485) 3,520
Tuv 20,711 8,104 1,491 12,607
Darkhan-Uul 1,752 8,760 8,760 (7,008) 7,000
Gobisumber 1,296 1,430 263 (133)
Dornod 8,702 6,743 1,241 1,959 3,000
Sukhbaatar 14,170 5,167 951 9,002 700
Khentii 15,738 6,396 1,177 9,342 1,100
Ulaanbaatar 2,658 118,303 71,000 (115,645) 32,380
Total 237010 60,615

Source. NSO news, - , researchers estimate

These studies show that for Bayan-Olgii, Uvs, Zavkhan, Selenge and Dornod have enough
warehouse the store enough for population while Gobi-Altai, Bayankhongor, Dornogobi, Dundgobi,
and Umnugobi lack warehouses that can store enough for everybody around the province. The other
provinces have warehouses but they are not big enough.
Primary producer and herder in household level
1. Depend on advantage self-dependent raw material production. Cluster formed to fix problems
from the primary meat producers, slaughter, storage, transportation and retailing in organized
way and increase profit. /District level/
2. Depend on geographic advantage. As taste and quality differ depending on geographic states
such as pasture, water supply, atmosphere, so Cluster can be formed to make product well-
known for its originality, brand loyalty can rise, raise price and more production. but this
Cluster is based on belief of herders on standard norms and proof of livestock origin.
3. Depend on breed and origin of livestock. Kalmyk cattle, Sukhbaatar lamb rump and Bayan-
Olgii Kaz are already popular among consumers, brand loyalty can take more place and other
products manufactured also by these herders can become well-known. /This can be organized
between herders in certain regions where special products can be made./
Meat processing in company level
1. Depend on technological advantage. Administrating and technological equipments such as
HACCP, GMP, ISO to increase market share and product value as main purpose of Cluster.
This form of Cluster can have advantages for large meat producers. As follows: As market
develop consumers tend to buy processed meat and meat products also requirement on health
and sanitation of food producers are higher. Therefore, manufacturers who are advantageous in
this area can form Cluster and make more opportunities to get more net profit.
Herder making private production Cluster
For herders who are primary meat producers organized slaughter, storage, transportation and sales are very
important. This will increase herders competing ability, as well as, competitiveness in market which will
cause the market to grow and develop.
On the other hand, as producers capacity and competiveness increase meat industry itself will develop,
increase competiveness, logistics and development in transportation, and financial investment will be more
likely.
Grounds for efficient Cluster. meat market study shows that as the meat supply decrease in spring the price
will vary by 30-40%. This gives producers chance to store meat and sell at that time and receive 30-40%
more profit. After slaughter more than 90% of meat is processed, however, producers have limited access to
freezers and warehouses so they are losing their chance to obtain more profit to middleman which
Mongolians call change. Therefore, if herders work in organized way they can have 30-40% profit
increase in spring.
Cluster goals. The very first problem for primary meat producer is to increase competitiveness in market
using plans based on surveys, products based on demand in market and useful sales strategy and by
organizing herders increasing net profit for herder is the main goal of Cluster.
Cluster benefits. Cluster benefits are present in direct and indirect from. First, as Cluster works efficiently
with strategy in market possible profit are gained. However, indirect benefit will be attracting the
government and increasing chances of financial assistance. For Clusters formed in District it is important for
the District Governor to encourage them. Cluster development will benefit herders in Cluster, moreover, it
will develop the whole district so by all means Governor must encourage Cluster in every way.

Graph 12. Chain showing expense of forming Cluster from primary meat producers.
Cluster benefit is estimated by correct sales strategy of product. For example: estimated benefit of Cluster by
how producers can sell products in spring to gain more profit. The sharp decrease in meat supply in spring is
seasonal and happen because of lack of warehouse to store meat which leads to wide price range and price
change.
Therefore, herders ca slaughter livestock while they are still healthy then store in designated warehouse and
sell in spring for 30-40% additional revenue. For example: for a district who supply 200 ton can gain
additional 200-300 million tugrug which will increase one family income per year by 1-2 million tugrug.
 Administer

Cluster Cluster management

administration team

Supervisor

Graph 13. Cluster structure for meat producers

On the other hand, cooperative are member coordinated company so few set of people are included and
beneficial for few people. Mongolian cooperatives in rural area are controlled by cooperatives president,
however, cooperatives president, manager, accountant do not receive any salary and they have less
managing role and members are not actively participating.

Table 6

Factors considered when forming Cluster in District

Cooperative Company Partnership
Quality Member based centralized Unlimited liability member
Fulfill members economic
Aim Gain profit, increase profit Gain profit, increase profit
and social needs
Each member with one Voting rights by amount of Voting rights by amount of
Voting rights
voting right investment investment
Property pubic Private /percentage/ Private
Compulsory
required Optional Optional
participation
Upper and Lower limit
Participating Capital No limit No limit
specified
Members liability By amount stated By amount invested By amount invested
Director and Supervisors Owner will lead/have
Director Unlimited liability
chosen from members council/
Distribute by the rule By amount invested By amount invested
Yours and outsiders outsiders Yours and outsiders

Not less than 9 Not limited 2 or more

Source. Researcher

The main goal of Cluster is organization so manager must have official salary and contract, constantly giving
salary is important. Meat producer Cluster with herders will have the following rules.
- Run market survey to see which product is where, at what price most demanded
- Change Cluster operation into efficient
- Cluster will focus on increasing competitiveness.
These themes will have focus on increasing profit and helping Cluster members. They are:
- Livestock slaughter will have guiding manual ensuring health issues and operate in unified form
- Sell meat at the most profitable period in market, so have suitable warehouse to store meat
- Transporting operation must be carried out in the most safe, clean way without damaging quality
of product
- By research determine sales channels such as supermarkets, restaurants, direct consumers. And
operate with efficiency.
- Develop certain symbol representing Cluster or sell product only in specific region to clarify the
origin of the product. These can be Cluster objectives as they both encourage Brand loyalty.

Herders Cluster
operations

Daily activities

Information, Training Cooperation Marketing Introducing

national standards
Communication

Market survey, Training Work together Run surveys on Slaughter and

product order, regarding with district product, transportatio
communication animal president, competitors n should hold
regarding slaughter, meat and market. safety first
transporters,
processing raw Finance, Operate based
banks,
material Accounting, researchers
on surveys
warehouse
technology
Graph 14. Main operation of Cluster in District