Executive Summary:
Cashmere and Savanna Regeneration: If you buy a cashmere sweater online, PayPal, which secures your electronic funds transfer, will earn as much money from the sale as the sheep farmer who had to endure winter months under the moon at -35°C to produce the natural cashmere. Cashmere is a powerful brand, and demand continues to rise. Despite the production of lighter fibers and less expensive production techniques, global demand for cashmere has increased to the point that the number of goats is destroying the fragile ecosystem of the Gobi Desert, both in Mongolia
and China.
The Blue Economy offers a solution: a shift in the business model, based on the market economy, but one that recognizes the unique role of herders and the need to preserve the ecosystem. Instead of
subjecting herders to an ever-decreasing global market price determined by buyers and processors, herders should be compensated like designers or inventors. A 10% commission on the consumer price would multiply revenues by 12. Most herders immediately reduce their herds,
thus relieving pressure on the land. This is what the Blue Economy team
is trying to achieve in collaboration with herder cooperatives in Mongolia.
Keywords: cashmere, ecosystems, Gobi Desert, Goyo, creator, commissions, PayPal, business model, desertification, specialization, outsourcing, unintended consequences
Protecting cashmere culture in the 21st century
The new world of cashmere
If you wear a fine, soft cashmere sweater, you're likely contributing to the desertification of Mongolia. This idea didn't sit well with me when I stood on the edge of the Gobi Desert, but the harsh reality is that we're often unaware of the unintended consequences we cause by wearing some of the finest garments. Even if that organic sweater carries an organic label, the absence of chemicals doesn't automatically make wearing goat hair sustainable. Ever-increasing demand is putting undue pressure on production. Every time the number of goats grazing in this fragile savanna bordering arid lands increases, the desert expands. So the question is: Is the best response to plant trees to stem the desert's expansion, as dozens of NGOs are trying to do, or should we focus on designing an economic system that improves the livelihoods of herders?
When we analyzed the value chain of a cashmere sweater purchased online, we were dismayed to realize that PayPal® earns as much from the sale of that sweater by securing the payment as the farmer does. The farmer dedicates his life and the lives of his family to the well-being of his animals and the meticulous shearing of the goat hair, which only grows in its softest variety if the animals survive harsh winters outdoors, accompanied by their farmer. The only way for farmers to survive—according to economists—is to adopt this modern market mechanism called "supply chain management." This tight control of all inputs aims to reduce costs, thus paving the way for owning more goats that—by law—graze for free on public land, and to reduce the burden of washing, spinning, dyeing, weaving, sewing, and selling by outsourcing each function to a specialized operator. These specialized niche players are primarily based in China, which accounts for 40% of cashmere production, while the majority is produced in Mongolia.
We consider it normal for a dress designer to receive 10% of the final selling price of a garment; we also consider it normal for the supplier of an industrial design to be compensated through royalties on the products and services derived from that design. It is therefore surprising that everyone (especially economists) expects farmers and herders to submit to the "world market price" and accept the value assigned to a kilogram. All other actors in the value chain add their commission to the basic cost. Unfortunately, the vast majority of service providers care little about whether the price per kilogram paid to the herder provides a livelihood for their family.
The promise of increased demand if the final price falls incentivizes the "guardians of the land" to produce more. This marks the beginning of the pursuit of economies of scale, regardless of the environmental and social cost. We all know that the more goats there are, the more desertification there is. It's a predictable recipe for disaster. However, there is a second recipe for the demise of traditional industries like cashmere, which have thrived in Mongolia and the surrounding areas for 5,000 years: specialization. The higher the volume, the more pressure experts exert to impose standardization. This results in a decrease in the creative contribution of skilled workers, turning people into machines and reducing profit margins to unprecedented levels. This serves the quest for ever-lower prices for the end consumer in order to further stimulate demand, since the price elasticity for a sought-after product like cashmere is high: a price reduction leads to much higher demand. The promise of higher volumes goes beyond profit, because the learning curve of high volume and low margins opens the door to professional services, which add to the cost of materials.
When traditional nomads, who have herded these goats for millennia, see only this short-term reality presented by foreign experts with business degrees and financial expertise, they are willing to risk overgrazing while subcontracting to the lowest bidder, reducing their role to herding and shearing. The downside is that the herders have now adopted a production and distribution model that offers no wealth, not even a real income. The ensuing hardships are well-documented and will prevent their children from ever dreaming of becoming goat herders. The next generation believes its future lies in migrating to the city. Soon, there will be no more cashmere to sell because the ecosystem has collapsed and the herders have moved on. Has modernity arrived, or what?
At this stage, it's important to remain positive, to refrain from looking for someone to blame, to never accuse those responsible for this blind belief in the benefits of globalization, and to stop complaining about middlemen's money and the harmful role of foreign experts. The key for any entrepreneur and social activist is to stay positive and look for opportunities to design a better system, to identify paths and means where no one else has ventured, and to imagine a business model that will ultimately make herders happy—so happy that their children believe the future lies with goats and the steppe. This requires three changes to the rules of trade.
Three steps that change the rules of trade
The first rule of trade that needs to change is the pricing of cashmere and the sharing of the added value generated by the final sale to the end customer. This should follow the same compensation model as for a designer: 10% of the selling price. After all, if there is no cashmere, there is no commission for anyone. This allows the farmer to plan the size of their herd and the annual wool production. If the farmer receives the "market price" upon delivery of the raw wool, they can then pocket a commission once the final sale is completed. Everyone will strive for the best quality and value instead of pushing for ever-increasing volume at lower costs.
This provides freedom to define roles and responsibilities, craftsmanship and artistry, design and cost. In effect, the farmer and their family can now decide their lifestyle. Even if a cashmere sweater were sold directly at half price, the farmer's income could still be ten times greater. The pressure to produce ever-increasing numbers of sheep is thus relieved. With half the number of sheep, he would double his income again, immediately reversing the advance of the Gobi Desert while ensuring a better quality of life and a future for his children. Since most of the debt incurred by the farmers is earmarked for their children's education, a better future for all is in sight.
Both economic models are based on a free market. The globalization model (which is graphically represented on the cover of this article) leads to increased desertification and, ultimately, the complete disappearance of the ecosystem and this 5,000-year-old cashmere trade. The commission model (presented at the end of this article) secures the cashmere trade indefinitely, while reducing supply, which will result in higher market prices, most likely triggering a further decrease in production and an increase in the quality of life. Ultimately, this will strengthen the ecosystem and reverse desertification. It's important to emphasize that this economic model requires government regulation in addition to the economic model itself.
Table 1: Farmers' income according to the economic model.
The second shift in the terms of trade is the process of transforming wool into garments. Global cashmere production is a mere 21,000 tons, cotton production is just under 100 million tons, and Mongolia produces 9,000 tons, or 40%. Why should cashmere be subjected to the same productivity logic as cotton, where everything is driven by the rapid evolution of fashion? Large-scale production thrives on outsourcing, forcing a few to specialize. Each intermediate product will be shipped, incurring additional costs and financing that exceed the herder's means, who thus loses most—if not all—of the added value.
The answer to preserving cashmere culture and tradition lies in vertical integration from wool to garment, not in specializing each step of the process. While it may not offer the perception of high efficiency, low cost, and increasing volumes, it allows for differentiation and interpretation by artisans, from selecting the finest hairs and the 38 natural color shades to spinning the fibers to the desired length and thickness to create unique effects, surprising patterns using the natural colors of the goats' undergarments, and finally, the finishing touches on the shearing process.
It offers a broad opportunity for artisans and women to contribute their unique skills and earn a significant share of the income, which can begin to circulate in the local economy, stimulating growth beyond what traditional market economists consider sustainable. Herders who used to go into debt to finance their children's education can now pay for the next generation's schooling without incurring further debt. Children from herding families can now realistically believe there is a future and know that there is a demand for their skills, both technical and artistic.
Third, we must educate customers so they purchase precious garments not as mere objects, but as a remarkable symbiosis: the need for goats to insulate their bodies against icy winds during long winters in a fragile ecosystem with protein-based wool, while simultaneously protecting the body with a water-repellent outer layer, all in harmony with millennia-old crafts from shearing to the creation of this marvel of nature, resulting in a sea of comfort and softness.
It is time to consider cashmere as a precious creation that every buyer wishes to pass down to the next generation, as it once was, and not as a consumer item like a cotton shirt bought at Zara or H&M. Instead of exploiting low-priced cashmere as a magnet to draw people into the store, it becomes a conscious decision that includes an awareness of preserving culture, tradition, and ecosystems through a single purchase. If the project is carried out correctly, as this briefing envisions, we will no longer need to plant trees to combat desertification. The steppe will return to the evolutionary path it has enjoyed for millennia, even before Genghis Khan reigned between China and Europe.
Figure 2: The virtuous economic cycle from an internal change.
Epilogue
The ZERI EU Foundation for a Blue Economy is partnering with Berlin-based agency Tuvd, Goyo, a local cashmere producer in Ulaanbaatar, and Spanish designer Sybilla Sorondo to create a special cashmere line that will be sold exclusively in pop-up stores in Tokyo, Madrid, and New York. Goat farmers will receive 10% of the final sale price paid by the customer. For more information, follow @MyBlueEconomy on Twitter and Facebook.
With special thanks
To Ms. Boldgerel Tuvd, who offers everyone a guarantee of follow-up and continuity; to Sybilla Sorondo, who has dedicated her life to serving people, especially the farmers and women who provided her with the extraordinary natural ingredients that make life elegant and beautiful; and to Katherina Bach for her unconditional support, from graphic design to photography to the little details of life that make all the difference. And to those who inspire me with science and logic and tolerate my sometimes outrageous proposals to change the world… now.
For more information
www.zeri.org
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