IN MONGOLIA, THOUSANDS DEMONSTRATE AGAINST HIGH FOOD

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SUBJECT: IN MONGOLIA, THOUSANDS DEMONSTRATE AGAINST HIGH FOOD
PRICES

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1. (SBU) SUMMARY: Sharply rising prices for staple foods prompted
approximately 4,000 demonstrators to take to the streets April 18 in
the heart of Mongolia's capital, Ulaanbaatar. Led by the National
Confederation of Mongolian Trade Unions, protestors demanded 40-50%
price cuts for bread and flour and threatened a nationwide strike if
the government failed to act. At a meeting of the government's
price stabilization program council on the April 21, producers and
protesters argued over the best policy for reducing prices. No
decisions were made, although the Prime Minister promised to
investigate the matter further. END SUMMARY


2. (SBU) Witnesses estimated that 4,000 demonstrators converged on
central Ulaanbaatar's Sukhbaatar Square on April 18 with banners
that read, "Stop Inflated Food Prices!" and "Increase Working Class
Salaries!" (Note: Wire agencies incorrectly reported that over
20,000 people took part in the demonstration. End Note.) The
protest followed a series of price hikes for basic food items,
including rice, flour, meat and bread. Bread prices had increased
50% in the last week alone, and the price of flour has tripled over
the past four months. Demonstrators also called for wage increases,
an improved legal environment to ensure fairer competition, and
reform of the country's social security system.


3. (SBU) S. Ganbaatar, President of the labor confederation, called
on the government of Mongolia "to take concrete action to stop the
rising consumer prices, which enrich a few companies at the expense
of thousands of Mongolians." Ganbaatar insisted that the
demonstration was not politically motivated, but threatened that if
price hikes were not dealt with soon, "the citizens will move to the
next level of action," which could include a nationwide strike.


4. (SBU) Later, and without resistance, Ganbaatar led a delegation
of protestors into Government House, where they were eventually
received by Prime Minister Bayar and Finance Minister Ulaan. The
protestors handed over a list of demands that included stabilizing
flour and bread prices. Flour currently costs 1000 tugrik per kilo
(US$.85 cents),and the protestors want this price reduced to
between 550 to 600 tugrik (roughly US$.51 cents) per kilo. Bread
currently sells for 800 tugrik per loaf (US$.70 cents),and the
protestors want this price sliced to 450-500 tugrik (roughly US$.42
cents).


5. (SBU) Bayar then invited representatives of the confederation and
the Mongolian Employers Federation (MONEF) to Monday's meeting of
the "Council on Coordinating Implementation of the Price
Stabilization Program." (Note: This is an advisory group that deals
with inflation. It was established earlier this year and includes
representatives from Government and the private sector. End Note.)
At the council meeting on April 21, emotions flared and Ganbaatar
accused bakers of gouging customers through 25 to 30% profit
margins. He suggested that producers should accept a 3 to 4% margin
of profit, to bring prices down to 450 tugrik per loaf. Bakers and
millers rejected this proposal out of hand, saying they could not
operate under such conditions and would shut down. Local producers
instead argued that high VAT and other taxes should be reduced or
eliminated. According to press reports, little was resolved at the
meeting, with PM Bayar simply agreeing to investigate the matter
further.


6. (SBU) According the World Bank, Mongolians spend 41% of their
income on food. Price increases have been devastating for poorer
consumers, with the urban poor bearing most of the shock. Some 32%
of Mongolia's population lives below the poverty line. More than
two-thirds of Mongolia's 17% inflation rate in 2007 was attributed
to increased food prices. Some of the protestors blame the current
situation on the collapse of the Soviet-era farming system. They

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nostalgically recall that Mongolia was self-sufficient in wheat
grain when Mongolia was a satellite of the Soviet Union. Harking
back to those halcyon days, the Minister of Food and Agriculture
rolled out a "Crop Rehabilitation Third National Mobilization" plan,
to restore self-sufficiency in wheat/flour and vegetable production
by 2010. But for now, Mongolia is heavily dependent on imports for
most non-meat foods, with bread and cereals arriving from Russia and
fruits and vegetables coming from China. This situation leaves the
country vulnerable to worldwide food price increases.

COMMENT
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7. (SBU) Regarding the "grand illusion" of Mongolia's Soviet-era
farms, others recall that the USSR underwrote the entire farm
sector, paying for almost all inputs. The sector produced cheap
bread and other staples because the Mongolians bore none of the
costs. The collapse of the Soviet Union brought an abrupt end to
this heavily subsidized system. The GOM, faced with a farm system
it could no longer afford, privatized most state-owned collective
farms, most of which collapsed because they could not economically
produce wheat and other crops without subsidies. This inability to
profitably produce crops continues, which necessitates expensive
imports, and threatens any plan to renovate the agricultural sector.


GOLDBECK