Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

P.O.Box - 761 Ulaanbaatar - 49 Tel: 461145, Fax: 461048

Year Four – 3rd Quarter Report July 08, 2007 - October 07, 2007 Cooperative Agreement # 438-A-00-04-00002-00

Submitted to the U.S. Agency for International Development

By

Mercy Corps Mongolia 24 Peace Avenue, Bayanzurkh District Ulaanbaatar, Mongolia Phone: 976-11-461-145 Contact: Sean Granville-Ross, Chief of Party Email: [email protected] Peter Ormel, Deputy Chief of Party Email: [email protected]

October 26, 2007

1 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

TABLE OF CONTENTS

PRROGRAMOGRAM HIIGHLIGHTSGHLIGHTS DDURINGURING TTHISHIS RREPORTINGEPORTING PPERIODERIOD OOFF JUULYLY 0088 TTOO OCCTOBERTOBER 007,7, 22007:007:...... 3 IINTERMEDIATENTERMEDIATE RRESULTESULT 11.3-1:.3-1: INNCREASECREASE IINN NUUMBERMBER OOFF NEEWW AANDND STTRENGTHENEDRENGTHENED BUUSINESSESSINESSES...... 6 ACCTIVITYTIVITY ONNEE: BUUSINESSSINESS PLLANAN DEEVELOPMENTVELOPMENT AANDND IMMPLEMENTATIONPLEMENTATION ...... 6 ACCTIVITYTIVITY TWWOO: COOOPERATIVEOPERATIVE FOORMATIONRMATION AANDND DEEVELOPMENTVELOPMENT ...... 9 ACCTIVITYTIVITY THHREEREE: TRRAININGAINING AANDND TEECHNICALCHNICAL ASSSISTANCESISTANCE FFOROR HEERDERRDER BUUSINESSESSINESSES...... 11 ACCTIVITYTIVITY FOOURUR: ACCQUIRINGQUIRING CRRITICALITICAL INNPUTSPUTS...... 13 ACCTIVITYTIVITY FIIVEVE: TEECHNICALCHNICAL ASSSISTANCESISTANCE AANDND TRRAININGAINING FFOROR NOONN--HHEERDERRDER BUUSINESSESSINESSES...... 17 ACCTIVITYTIVITY SIIXX: LOOCALCAL CAAPACITYPACITY BUUILDINGILDING FFOROR TRRAININGAINING AANDND TEECHNICALCHNICAL ASSSISTANCESISTANCE ...... 19 ACCTIVITYTIVITY SEEVENVEN: MAARKETRKET DEEVELOPMENTVELOPMENT ...... 20 ACCTIVITYTIVITY EIIGHTGHT: LOOCALCAL GOOVERNMENTVERNMENT SUUPPORTPPORT FFOROR BUUSINESSSINESS ...... 24 IINTERMEDIATENTERMEDIATE RRESULTESULT 11.3-2.3-2 INNCREASECREASE IINN AVVAILABILITYAILABILITY, ACCCESSCESS TTOO AANDND USSEE OOFF INNFORMATIONFORMATION ...... 26 AACTIVITYCTIVITY OONE:NE: BUUSINESSSINESS INNFORMATIONFORMATION ...... 26 PPACTACT / RRBNBN ACCTIVITIESTIVITIES...... 30 AACTIVITYCTIVITY TTWO:WO: LOOCALCAL CAAPACITYPACITY FFOROR INNFORMATIONFORMATION DIISSEMINATIONSSEMINATION AANDND COOMMUNICATIONSMMUNICATIONS...... 37 CCOLLABORATIONOLLABORATION WWITHITH GGOVERNMENTOVERNMENT OOFF MMONGOLIAONGOLIA AANDND OOTHERTHER PPROJECTSROJECTS...... 38 PPROGRAM/FINANCIALROGRAM/FINANCIAL MMANAGEMENTANAGEMENT ...... 39 CCONCLUSIONSONCLUSIONS AANDND RRECOMMENDATIONSECOMMENDATIONS ...... 39

2 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

GOBI INITIATIVE PHASE II – YEAR FOUR - THIRD QUARTER REPORT

INTRODUCTION:

The Gobi Regional Economic Growth Initiative - Phase II (Gobi II) project began on January 08, 2004, funded under Cooperative Agreement #438-A-00-04-00002-00. The project is being implemented by Mercy Corps in partnership with PACT, Inc.

Gobi II has the following goal, objectives and overall focus:

Program Goal:

To develop and strengthen rural business in the Gobi region.

Program Objectives:

An increase in the number of new and strengthened productive Gobi businesses; An increase in the production and sale of marketable animal products and crops; An increase in availability, access to and use of business information by Gobi entrepreneurs.

Program Focus:

Supporting herder groups that are expanding and/or diversifying their business activities; Supporting the development of herder cooperatives; Supporting businesses that add value to herder products and link those products to markets; Improving the supply of critical inputs for production, including business financing; Improving the quality and accessibility of local business development and support services; Ensuring a safer supply of food products for Mongolian consumers.

PROGRAM HIGHLIGHTS DURING THIS REPORTING PERIOD OF JULY 08 TO OCTOBER 07, 2007:

Total sales for herder businesses during the first three quarters of CY2007 reached MNT 1.21 billion ($1.0 million) and for non-herder businesses MNT 1.34 billion ($1.14 million). This gives a CY2007 total sales to date of MNT 2.55 billion ($2.16 million), or 66.8% of the sales target for CY2007 for all GI clients (set at MNT 3.83 billion [$3.23 million]). Total sales have reached 94.7% of expected sales for the reporting period. The lower sales figures that planned is mainly being due to the severe drought observed in northern Dundgovi and across the whole of Gobi-Altai, due to which several businesses have faced problems with the implementation of their business plans. As many of the herder and some non-herder businesses have seasonal production, Mercy Corps hopes that the CY2007 sales target for Gobi Initiative will be reached by the end of December 2007. During the third quarter the herder and non-herder businesses have created 115 new jobs. The quarter also saw continued provision of a total of 98 trainings and technical assistances by aimag and Ulaanbaatar based consultants to the clients. The total number of loans accessed by GI clients during this quarter reached 33 and the total value of all disbursed loans reached MNT 81.8 million ($69,205). 88 clients received information on equipment and production inputs required for their businesses and purchased equipment and inputs with a total value of MNT 140.9 million ($119,205).

The Market Days for locally produced goods were successfully organized in all six Gobi aimags during September. Since the start of Year Four to date a total of 16 Market Day events have been organized ranging from soum and Saturday Market Fairs to the yearly Aimag Market Days. In all, the Market Days have attracted a total of 64,900 visitors and generated sales of MNT 357 million ($306,437). Market Days were initiated by the Gobi Initiative program in Year One 2004 and have received increasing attention from the general public. In 2007, local government and aimag Mongolian National Chamber of Commerce and Industry offices have been increasingly involved in the organization and financing of the Market Days. This year there was a decrease in the financial contribution of Mercy Corps to 20.6% of overall Market Day costs. 2007 Market Days generated MNT 10.1 sales for each MNT 1 organizing cost.

3 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

Four major study tours took place during the third quarter. From 6 to 11 of August, a modern dairy processing technology and techniques study tour was organized. 36 herders from Bayanhongor, Govi-Altai, Dundgovi, Govi-Sumber, Uvurhangai and Zavhan aimags visited dairy businesses in Tsetserleg town and Ikh Tamir, Tariat, Chuluut and Undur Ulaan soums of Arhangai aimag. The herders learned "Huruud" 1 making technology, were taught how to build a hotbed for drying "aaruul", were introduced to the operation of aaruul pressing equipment and new package design for dairy products, and set up business links with the herders of the Gobi and Hangai regions. A direct result of this study tour can be highlighted by Hot Mandal Undarga Cooperative from Bayanhongor aimag. Based on the new ideas they were able to gather during the study tour, they were able to diversity their products and offer a high quality, innovative product for the local market which did very well during several trade fair (see success story below).

Hot Mandal Undarga Cooperative from Bayanhongor aimag participated in a study tour to

Arhangai aimag in August. The goal of the trip was to learn from local producers how to make

Huruud curd. The trip was successful and the cooperative was able to launch a new product

increasing their sales. They successfully participated in three Trade Fairs winning prizes in each

event. For example their product was selected as the Best Dairy Product in "Hangai Regional

Partnership-2007" held in Bulgan aimag in Sep 10-11. In "Bayanhongor Partnership -2007"

held in Sep 14-15 in Bayanhongor they again won the Best Dairy Product Award. The third

trade fair they participated was organized in Ulaanbaatar in Sep 21-28. They were awarded

"The Golden Brand Owner" with their "Sliced Curd and Buram" dairy products.

From 2 to 6 of July, a group comprising of 17 clients and 5 program officers of Mercy Corps visited Ulaanbaatar and Darhan as part of a study tour on meat production and establishing contracts with meat processors. During the study tour the participants learned methods and technologies of rearing and providing appropriate animal nutrition to high productive breeding animals, utilization and sale of breeding livestock, established business contacts with livestock breeders, and bought elite animals.

Two market-linkage meetings were held in Ulaanbaatar concerning food products and handicrafts. The goal of these meetings was to link rural producers to new markets, to enable buyers to clarify the terms and conditions under which they are willing to purchase products from the rural producers and to promote long term relationships with Ulaanbaatar based buyers.

- The meeting for food products was held on 21-22 August in Ulaanbaatar with participation of 19 businesses from 10 aimags (Umnogobi, Dundgobi, Hovd, Gobi Sumber, Bayanhongor, Gobi Altai, Uvurhangai, Arhangai, Sukhbaatar and Zavkhan) and 10 Mercy Corps program officers. Ulaanbaatar companies engaged in the food sector including; Minii delguur supermarket chain, Nomin Foods company, Mon Enzyme LLC, Mon cream LLC and Nomads group presented their activities and met with the producers. 6 producers (2 from Gobi Altai, 2 from Gobi Sumber, 1 from Uvurhangai and 1 from Bayanhongor) agreed to sign contracts for the supply of "vegetable flavored curd" (aartstai amtlagch), meat, cakes and cookies, "Camel milk yogurt" and watermelons.

- The meeting for handicraft products was held on 23-24 August in Ulaanbaatar with participation of 28 businesses from 10 aimags (Umnogobi, Dundgobi, Hovd, Gobi Sumber, Bayanhongor, Gobi Altai, Uvurhangai, Arhangai, Sukhbaatar and Zavkhan) and 10 Mercy Corps program Officers. Ulaanbaatar companies engaged in the sale of handicrafts such as Open Steppe company (e- commerce); Mary & Martha Mongolia; Wool craft producers support center NGO; Grassroots souvenir shop of XAC bank and Nomin souvenir shop presented their activities and met with the visiting businesses. At the meeting Intelligent Property Ownership Office provided information on copyrights and two Ulaanbaatar consultants provided information on product and logo design. During the meeting direct sales worth MNT 143,500 ($120) and 3 contracts (1 producer from Gobi Altai, 1 from Umnogobi and 1 from Dundgobi) to supply camel yarn and general souvenirs to Open Steppe were signed with a total value over MNT 4.0 million ($3,400). 2 other clients (1 from Hovd and 1 from Bayanhongor) have been asked to present more samples after revision of which a contract remains a possibility.

1 Khuruud is one of the varieties of curd 4 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

Mercy Corps facilitated a study tour of 14 Gobi Initiative veterinary clients from Dundgobi and Umnugobi to Arhangai aimag which was held from 25 to 31 of July. During the study tour, the participants visited 7 veterinary clinics in Arhangai aimag and exchanged experience regarding clinic operation, veterinary methodology and client relations. The participants also participated in a conference titled, "Challenges in Veterinary Sector in Gobi Region" held in Tsagaan Zalaa soum, Uvurhangai aimag. The conference was attended by nearly 150 vets from 7 aimags and representatives from the State Veterinary Service, Research Institute of Veterinary Science, Biologicals Plant, GTZ, New Century Nomads Support Center, Agricultural Extension Center, State Veterinary Quality Control Laboratory and Tsagaan Zalaa Agvet. It was a significant event that enabled the participants to discuss a variety of outstanding problems and constraints faced in the veterinary sector such as improving measures for livestock disease control in the Gobi aimags, alleviating constraints in the private veterinary service sector, upgrading veterinary laboratory operation and improving the animal drug supply system in rural Mongolia.

During the quarter the Gobi Initiative commenced the selection of new clients for CY2008. Client selection guidelines have been elaborated and potential clients have been made aware of the opportunity to collaborate with the Gobi Initiative program through radio. Mercy Corps also engages soum and bag governors who assist in the identification of potential clients. To-date, Gobi Initiative has received 236 applications from six representative offices, out of which 45 from Uvurhangai, 103 from Bayanhongor, 26 from Umnogobi, 14 from Dundgobi, 30 from Gobi-Altai and 18 from Gobi- Sumber. Gobi Initiative expects that the number of applications will continue to increase until the current deadline for submission, set at 01 October 2007.

In order for rural economic development to be effective, a community needs to identify and consider its own economic strengths, weaknesses, opportunities and threats, and agree a shared strategy with all participating sectors (public, private and civil society). Socio-economic development master plans offer communities the opportunity to work together to improve the local economy and enhance competitiveness, thereby encouraging sustainable and inclusive growth. The development of the plans involved local government employees, members of the soum citizen's representative Khural (local parliament), business owners and local residents. Gobi Initiative has facilitated the process from the initial meeting of all the stakeholders through to the development of the final master plan. The program has engaged 158 local government employees in capacity building trainings and a total of 6 soum master plans were approved by the respective Citizens Representative's Hurals during the quarter.

State Great Hural Chairman D. Lundeejantsan, during his trip to Bayan-Undur soum, Uvurhangai aimag, met Gobi Initiative client Bolormaa (Mongol boots maker) on August 20 and talked to her about the business she runs.

Comment from Mr. Lundeejantsan, Chairman of State Great Hural, at the meeting with soum residents: "An example of patent holder Bolormaa who bought a production place by a loan with a guarantee provided by Mercy Corps Mongolia has enabled her to begin reviving the consumer service sector in the soum and presents a good model to the youth of business opportunities".

U.S. State Department officer Mr. Keith Luse, U.S. Ambassador to Mongolia Mark Minton, US Embassy officer Dan Neithel, USAID staff William Butterfield, Ms. H. Mendsaihan and Mercy Corps officer responsible for China and Mongolia Ms. Kate Janis have all visited the Gobi Initiative on separate trips during the quarter and were introduced to program activities and met with clients.

The Gobi Forage project developed and distributed during the quarter the following products: 4 sets of forage maps were distributed to 120 soums across the six target aimags on a monthly basis, radio programs on the Gobi Forage and the rangeland conditions were aired using the information from the computer models as a basis for the programs. Training on the usage and interpretation of the Gobi Forage maps and products were held in 96 soums involving local government officials and herders. The set of maps include current rangeland conditions and forecasted conditions for 60 days in advance. The maps are available at: http://glews.tamu.edu/mongolia. 5 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

Under the RBN component of Gobi Initiative, the filming for the production of the Final Destination-2 TV series has successfully been concluded during July in Gobi-Ugtaal soum of Dundgobi aimag, involving more than 300 people in both the acting and filming operation. The series reflects best business establishment practices and the challenges of managing a business in rural Mongolia, as well as the day to day life of a private veterinary practice. The first 10 episodes out of a total of 26 have been edited and the whole series will be edited and finalized by August.

INTERMEDIATE RESULT 1.3-1: INCREASE IN NUMBER OF NEW AND STRENGTHENED BUSINESSES

ACTIVITY ONE: BUSINESS PLAN DEVELOPMENT AND IMPLEMENTATION Targets: 246 herder businesses implement business plans in 2007 with total sales of MNT 1,9 billion, by January 05, 2008; 75 non-herder businesses implement their business plans in 2007 with total sales of MNT 1,8 billion.

Progress during Indicators Last reporting period current reporting Progress to date period Number of new 19 (GA 9, UH4, DG 4, 314 (GA-50, UH-75, 333 (GA-59, UH-79, applications UG 2) DG-14, UG-50, GS- DG-18, UG-52, GS- 21, BH-104) 21, BH-104) Number of participants 32 0 32 in BP development training Number of BPs 338 4 (UH-1, DG-1, GS-2) 342 developed Number of BPs 304 14 318 implemented Value of sales MNT 1,351,790,408 1,200,708,864 2,552,499,272 Number of new job 257 (DG 41, BH 26, 115 (DG-27, GA-36, 372 (DG-68, GA-101, places created UH 53, UG 51, GA GS-5, BH-16, UH-12, UG-70, BH-42, UH- 65, GS 21) UG-19) 65, GS-26) Number of graduates 9 10 19 and drop-outs

Table #1. Total Business Plan Implementation Status Evaluation

# of Clients who started By 30 September, 318 clients have started to Aimags # of Clients implementing BP implement their business plans. Some Bayanhongor 64 64 clients had experienced problems with the implementation of their business plan due to Dundgovi 54 54 severe drought conditions in northern Govi-Altai 60 60 Dundgovi and the whole of Govi-Altai. However, new clients have requested Govi-Sumber 25 25 collaboration with the Gobi Initiative Umnugovi 50 50 program and have started the Uvurhangai 65 65 implementation of their business plans during the reporting period. TOTAL 318 318

6 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

Table #2. Herder Business Sales by Aimags (MNT)

Planned Sales # of Total Planned 1st Quarter 2nd Quarter 3rd Quarter Cumulative Actual/ Aimags for First 9 % Clients Sales Sales Sales Sales Total Sales Months Planned Bayanhongor 50 413,858,520 259,647,879 56,812,500 94,115,500 135,480,520 286,408,520 69% 110% Dundgovi 43 267,248,660 198,228,660 14,117,730 52,744,550 101,715,500 168,577,780 63% 85% Govi-Altai 43 335,113,575 216,912,592 17,816,250 70,845,210 104,285,935 192,947,395 58% 89% Govi-Sumber 17 215,643,200 151,074,900 21,181,213 48,684,600 85,866,540 155,732,353 72% 103% Umnugovi 35 173,326,100 113,606,150 18,268,388 28,313,252 62,383,744 108,965,384 63% 96% Uvurhangai 50 545,172,462 360,728,941 70,051,230 104,618,330 121,715,600 296,385,160 54% 82% TOTAL 238 1,950,362,517 1,300,199,122 198,247,311 399,321,442 611,447,839 1,209,016,592 62% 93%

Table #3. Herder Business Sales by Sector (MNT)

Planned Sales # of Total Planned 1st Quarter 2nd Quarter 3rd Quarter Cumulative Actual/ Aimags for First 9 % Clients Sales Sales Sales Sales Total Sales Months Planned Animal breeding 9 31,669,700 24,711,200 0 10,424,300 13,830,000 24,254,300 77% 98% Dairy 57 331,677,642 203,568,341 46,052,413 34,834,650 110,624,800 191,511,863 58% 94% Felt 32 192,886,267 143,724,651 9,919,800 18,638,800 72,274,100 100,832,700 52% 70% Meat 13 123,788,355 67,181,855 13,141,000 34,211,000 43,516,900 90,868,900 73% 135% Other production 25 455,653,160 320,652,939 93,301,400 91,588,100 106,518,900 291,408,400 64% 91% Tourism 7 40,254,000 34,429,250 4,726,400 7,850,500 18,182,100 30,759,000 76% 89% Vegetable/ fodder 55 315,434,962 120,034,696 9,632,000 12,967,500 96,216,600 118,816,100 38% 99% Veterinary 40 458,998,430 385,896,190 21,474,298 188,806,592 150,284,439 360,565,329 79% 93% TOTAL 238 1,950,362,516 1,300,199,122 198,247,311 399,321,442 611,447,839 1,209,016,592 62% 93%

Table #4. Non-Herder Business Sales by Aimag (MNT)

Planned Sales # of Total Planned 1st Quarter 2nd Quarter 3rd Quarter Cumulative Actual/ Aimags for First 9 % Clients Sales Sales Sales Sales Total Sales Months Planned Bayanhongor 14 692,444,069 499,258,260 129,197,990 165,307,750 215,505,840 510,011,580 74% 102% Dundgovi 11 212,103,332 141,524,266 19,911,800 39,046,900 63,914,210 122,872,910 58% 87% Govi-Altai 17 228,612,100 178,311,100 16,355,400 61,364,100 84,455,200 162,174,700 71% 91% Govi-Sumber 8 138,574,968 119,429,131 23,705,150 42,528,725 37,596,225 103,830,100 75% 87% Umnugovi 15 319,964,500 251,613,000 68,267,750 82,060,350 100,490,440 250,818,540 78% 100% Uvurhangai 15 279,799,425 203,230,565 54,428,600 53,050,540 86,295,710 193,774,850 69% 95% TOTAL 80 1,871,498,394 1,393,366,322 311,866,690 443,358,365 588,257,625 1,343,482,680 72% 96%

Table #5. Total Client Sales by Aimag (MNT)

Planned Sales # of Total Planned 1st Quarter 2nd Quarter 3rd Quarter Cumulative Actual/ Aimags for First 9 % Clients Sales Sales Sales Sales Total Sales Planned Months Bayanhongor 64 1,106,302,589 758,906,139 186,010,490 259,423,250 350,986,360 796,420,100 72% 105%

7 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

Dundgovi 54 479,351,992 339,752,926 34,029,530 91,791,450 165,629,710 291,450,690 61% 86% Govi-Altai 60 563,725,675 395,223,692 34,171,650 132,209,310 188,741,135 355,122,095 63% 90% Govi-Sumber 25 354,218,168 270,504,031 44,886,363 91,213,325 123,462,765 259,562,453 73% 96% Umnugovi 50 493,290,600 365,219,150 86,536,138 110,373,602 162,874,184 359,783,924 73% 99% Uvurhangai 65 824,971,887 563,959,506 124,479,830 157,668,870 208,011,310 490,160,010 59% 87% TOTAL 318 3,821,860,911 2,693,565,444 510,114,001 842,679,807 1,199,705,464 2,552,499,272 67% 95%

Figure #3. Total Sales Income by Month

600,000,000 509,716,314 500,000,000 381,584,665 400,000,000 333,034,630 301,001,820 300,000,000 307,654,475 175,953,970 200,000,000 208,643,357 173,983,458 100,000,000 159,173,173

0 Jan Feb Mar Apr May Jun Jul Aug Sep

Table #6. Summary of Sales Comparing CY2007 with CY2006

Sales Amount, MNT Period # of Clients Total HB NHB Year 2007 (3rd Quarter) 318 1,199,705,464 611,447,839 588,257,625 Year 2006 (3rd Quarter) 222 996,650,207 533,358,357 463,291,850

By the end of the third quarter of 2007, Mercy Corps clients have generated 95% of sales projected for this quarter. Herder businesses have achieved 62% and the non-herder businesses 72% of the total sales target for CY2007 by the end of this reporting period. Total sales has increased compared to the same period last year, but average sales has decreased by 16%. This is mainly due to the drought conditions that Mercy Corps has reported for Dundgovi and Govi-Altai where herder and non-herder businesses show below-expected levels of sales. Taking into consideration the risks and challenges of producing under fairly adverse conditions, it should be noted that many clients have made their best efforts to produce under difficult circumstances. An important result to date is that no defaults on loan payments have occurred due to these adverse conditions, even when sales are under pressure. Herder business sales in Umnugovi and Uvurhangai are also less than expected. Vegetable growers planted seeds later than planned due to the late summer and harvested also later than expected. Harvest was normal and they will sell their vegetables in October. Drought was the reason for low production of hay. For example one of our clients in Uvurhangai used to make hay in Tuv aimag, but this time he wasn't given permission because there was scarce grass there and the soum authorities prohibited anyone to prepare hay there.

8 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

ACTIVITY TWO: COOPERATIVE FORMATION AND DEVELOPMENT

Targets: • More than 92% of total herder clients register as legal entities within 10 months after BP implementation, contribute to local tax revenue & distribute dividends to members.

Last reporting Progress during Indicators period current reporting Progress to date period Number of groups registered within 10 51 9 60 months of BP implementation Number of clients keeping formal records & tax returns (meeting minutes 318/263 321/267 321/267 & financial) Growth in dividend per member 22.2% - 22.2% Number of cooperatives that have 96 - 96 active management Number of active members involved in 972 - 972 cooperative activities Number of young members involved 869 - 869 in cooperative activities

*Most data comes from cooperative survey conducted in June. There was no survey in the III quarter. Next survey will be conducted in December

Table #7. Total Numbers of Herder Groups and Cooperatives/Registered Businesses

Last reporting Progress during Progress period current reporting to date period

Number of Coops / 244 +10 254 Registered Businesses

Number of Herder Groups 74 -10 / +3 new 67 (Unregistered)

TOTAL 318 +3 new 321

Table #8. Legal Entities Registered During Third Quarter

Registered Aimag Group name Legal status Notes entity name Established a cooperative, Altan Cooperative submitted an application to the tax office for registration. Rashaant Rashaant Delger Bayan Cooperative Maihan Maihan Hairhan Cooperative Bayanhongor Dolgorsuren Mandal Baidrag Cooperative D. Erdenechuluun Buyant Hongor Cooperative D. Bataa Jargalant Sumber Hairhan Cooperative All entities got certificates. S. Bayanjargal Jalangar Ovoo Cooperative Ireeduin Tuluu Ireeduin Tuluu Cooperative Govi-Altai Badmaabazar Ariun Saam Cooperative Dundgovi Urnuh Hairhan Hongor LLC

9 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

Table #9. Summary of Legal Entity Registration in CY2007 compared to CY2006

# of Clients at the Registered as Legal Remained as Percentage change

Beginning of Year Entity Group to Legal Entity Year 2007 (1st, 2nd and 135 81 54 60% 3rd quarters) Year 2006 (1st, 2nd and 86 63 23 63% 3rd quarters)

During the third quarter, 9 herder groups have been registered as new legal entities, brining the total for the year to 254 legally registered entities. At the same time, 12 herder groups have applied for legal registration and are awaiting further guidance from local government officials. Three new herder groups have entered the program as new clients, bringing the total of herder group program clients to 54. Overall, out of a total of 135 herder groups who started or continued collaboration with the Gobi initiative program at the beginning of the year, 81 or 60% have registered as legal entities. Five cooperative development and 6 financial management trainings have been delivered to 36 herder clients in the reporting period, conducted by the aimag-based consultants, with the primary focus on cooperative management and finance.

The Bayanhongor Herder Alliance's Steering Committee Chairman Mr. J. Tuvaandorj and General Manager Mr. D. Ganbayar worked in the Mercy Corps representative office in Ulaanbaatar from August 28-31, 2007, undergoing the process of orientation on the office procedures. Mercy Corps Mongolia and the Bayanhongor Herder Alliance's signed a Memorandum of Understanding for the period covering July 31, 2007 up to June 30, 2008. The Herder Alliance is a herder based cooperative modeled after ranch/farm cooperatives found in rural areas of North America but adapted to Mongolian conditions The purpose of the Herder Alliance is to develop in the private sector the supporting infrastructure (i.e. cooperative) that gives livestock and crop producers access to quality production inputs (veterinary medicines, fertilizer, machinery and equipment, animal feeds, etc.), provides and organizes services that will improve product quality or improve producer capacity to engage in commercial agricultural production in the Mongolian environment (wool and cashmere grading, mechanical shearing, petroleum, spare parts, veterinary medicines, etc.), acts as an agent to market crop and livestock off-take products for members of the cooperative, and assists herders and farmers to mitigate financial and environmental risk associated with agricultural production (information provided by Gobi Forage, RBN news, etc). To date, a total of 56 people have applied for and registered as a member of the Alliance an purchased shares with total value of MNT 9.1 million. The first golden share was bought by Galuut soum resident A. Zorig by MNT 500,000 and the generated proceeds were duly deposited to the bank account of the Alliance.

10 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

ACTIVITY THREE: TRAINING AND TECHNICAL ASSISTANCE FOR HERDER BUSINESSES

Targets: • 124 new herder clients will receive at least 319 trainings & consultancies in 2007; • 122 existing herder clients will receive at least 231 trainings & consultancies in 2007 with a 15% cost share on consultant fee; • Total number of HB TA & consultancy will be at least 550 in 2007.

Last reporting Progress during Indicators Progress to date period quarter reporting period No trainings & consultancies conducted 289 98 387 # of clients participated 416 192 608 Length of training 1.9 1.9 1.9 Number of participants 1,715 518 2,233 Quality of training 88% 89.2% 88.61% (Average form A score) % of increase in participants' 31.5% 35.8% 33.7% knowledge % of female participants 51% 60% 53% % of local consultant provision 80% 75% 79% (including staff) % of cost recovery (eligible trainings) 15% 15% 15%

Training activities continued during the third quarter, in total 98 trainings were delivered to 518 participants of whom 60% were women. To date a total of 387 training activities have been provided to the GI clients in the first three quarters. Knowledge increase measured by the difference between a pre- and post-training test has shown an average increase of 35.8%. Herder businesses receiving training or technical assistance continue to contribute a cost-share to the consultant fee of 15% on average. The cost share was collected by the consultant from existing old herder business clients that have participated in the program in previous years or those who have already received three technical assistance (TA) interventions. 75% of TAs were delivered by aimag-based consultants, with the most popular TAs being vegetable/crop production and dairy milk processing (see table #10).

36 herders from Bayanhongor, Govi-Altai, Dundgovi, Govi-Sumber, Uvurhangai and Zavhan aimags visited dairy businesses in Tsetserleg town and Ih Tamir, Tariat, Chuluut and Undur Ulaan soums of Arhangai aimag. The herders learned "huruud" making technology, were taught how to built a hotbed for drying "aaruul", were introduced with operation of aaruul pressing equipment and new package design for dairy products, and set up business links with the herders of the Gobi and Hangai regions. A direct result of this study tour can be highlighted by Hot Mandal Undarga Cooperative from Bayanhongor aimag. Based on the new ideas they were able to gather during the study tour, they were able to diversity their products and offer a high quality, innovative product for the local market which did very well during several trade fair (see success story below).

From 2 to 6 of July, a group comprising of 17 clients and 5 program officers of Mercy Corps visited Ulaanbaatar and Darhan as part of a study tour on meat production. During the study tour they learned methods and technology of rearing and nutrition of high productive breeding animals, utilization and sale of breeding livestock, established business contacts with livestock breeders, and bought elite animals.

From July 25 through August 01, 2007, 8 veterinarians from Dundgovi aimag and 7 from Umnugovi have introduced themselves with the activities of veterinary clinics of Hangai aimags, their marketing as well as with the "Veterinarians Without Borders" project implementation progress, and participated in the conference titled "Major Challenges in Veterinary Sector in Gobi Region" held in Hujirt soum, Uvurhangai aimag on July 26-27.

11 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

Table #10. Summary of Training and Technical Assistance for Herder Clients

Third Quarter Progress To Date General Classification of TA Total UB Local GI Total UB Local GI Animal breeding 3 2 1 0 8 3 4 1 Bakery/food processing 3 3 0 0 10 4 6 0 Boot/garment production 0 0 0 0 4 0 4 0 Business training 1 0 0 1 4 1 1 2 Cooperative development 4 1 1 2 92 5 54 33 Dairy/milk processing 16 1 15 0 31 4 27 0 Felt/wool technology 8 3 5 0 28 18 10 0 Financial management 6 0 6 0 23 1 11 11 Fodder/forage production 2 1 0 1 5 1 1 3 Handicrafts 1 0 1 0 5 0 5 0 Intensified animal production 0 0 0 0 2 2 0 0 Sales and marketing 3 0 2 1 14 1 4 9 Meat 0 0 0 0 2 2 0 0 Round table discussion 1 0 0 1 1 0 0 1 Semi-settled livestock production 0 0 0 0 1 1 0 0 Specialized TA 6 2 3 1 25 4 19 2 Study tour 4 0 1 3 5 0 1 4 Tourism operations 0 0 0 0 3 3 0 0 Vegetable/crop production 36 11 24 1 97 23 71 3 Veterinary training 4 1 3 0 27 9 14 4

TOTAL 98 25 62 11 387 82 232 73

12 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

ACTIVITY FOUR: ACQUIRING CRITICAL INPUTS

Targets: • 271 loans disbursed with a total value of MNT 803 million, all of which are repaid according to schedule; • 90% loans will be used for intended purposes; • Average collateral by herder clients will not exceed 50% and for non-herder 60%; • All clients receive critical inputs required for BP implementation (subject to plan) and at least 4 local input suppliers established or strengthened.

Last reporting Progress during Indicators Progress to date period quarter reporting period Number of loans disbursed 164 33 197 Value of loans disbursed 495,122,000 81,772,800 576,894,800 % of collateral provided by LGM 45% 39% 44% Number & proportion of loans ≤ 3M 123 (75%) 31 (94%) 154 (78%) MNT % of LGM collateral for loans ≤ 3M 46% 39% 44% MNT Repayment rates of loans ≤ 3M Loan with outstanding Loan with outstanding 0 MNT balance - 1 balance - 1 Number of clients that received 121 88 209 input facilitation Value of equipment purchased 201,889,040 146,405,000 348,294,040

Table #11. Loan Disbursement and Borrowers' Collateral In Third Quarter by Aimag

Loan amount, % of collateral secured Aimag # of borrowers MNT by clients Bayanhongor 2 ("Eruul Urjihui", "Hairhan gol") 3,500,000 57.1% Dundgovi 10 ("Logiin Govi", "Bulgiin Tsagaan Undur", "Tugrugiin Itgeltsel" cooperatives, "Boryn Hundii", 20,022,800 61.3% "Butuuriin Suga", "Tuhum Delgereh", "Shuvuutai Gurvan Jirem", Amarjargal, "Sartus", "Zuun Bulag") Govi-Altai 10 ("Shalyn Hond", "Baga Murun", "Zurgaadai", "Gazriin Uguuj-Hurimt", "Batundraa", "Gol Eej", "Hairhan", 25,400,000 67.0% "Tsagaan Hairhan", "Durvun Uvuljuu") Govi-Sumber 3 ("Emeeliin Hishig Hond", "Sumber 13,000,000 57.7% Tsagaan Temeet", "Ih Uul") Umnugovi 3 ("Jargalantyn Itgeltsel", 6,350,000 59.2% "Dashnoorov Uul", "Zedii")) Uvurhangai 5 ("Dulguum Devshil", "Uguuj Chandmana", "Bolor", "Monnak", 13,500,000 56.7% "Danshig Denj") TOTAL 33 81,772,800 61.4%

During the reporting period, 33 loans were disbursed for a total value of MNT 81.8 million ($69,182) with MNT 31.6 million cash collateral ($26,759 or 39.0%) provided by Mercy Corps. This brings the total number of loans facilitated by Gobi Initiative for CY2007 to 197 with a total value of MNT 576.9 million ($488,894) with MNT 256.6 million provided as cash collateral ($217,463 or 44%) by Mercy Corps.

13 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

14 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

Table #12. Total Number and Size of Loans Disbursed in 2007

# of loans Size of loans, MNT Month Total HB NHB Total HB NHB 2007 projection 271 803,286,800 January 42 30 12 147,635,000 89,885,000 57,750,000 February 28 19 9 77,730,000 51,830,000 25,900,000 March 28 23 5 89,054,000 74,654,000 14,400,000 April 33 24 9 105,438,000 55,461,000 49,977,000 May 17 15 2 40,595,000 28,595,000 12,000,000 June 16 16 0 37,170,000 37,170,000 0 July 15 13 2 34,772,800 29,772,800 5,000,000 August 15 11 4 40,000,000 31,650,000 8,350,000 September 3 3 0 7,000,000 7,000,000 0 TOTAL 197 151 43 576,894,800 403,517,800 173,377,000 Percentage 73% 72%

The total number of loans facilitated by Gobi Initiative has reached 73% of the expected number and 72% of the expected amount. Even though some more loans may be facilitated in the last quarter of 2007, it is not likely that the number of loans planned at the beginning of the year will be disbursed. This is the consequence of two main factors. First, the drought, already mentioned in this report, that has severely affected a large part of Dundgovi and the whole area of Govi-Altai. As a result this has meant that a lot of herders have migrated, sometimes leaving family members behind to maintain business activities at reduced levels. This has also implied that many families have opted for not taking a bank loan under already adverse conditions, and not add the risk of a bank loan to the existing burden. Gobi Initiative has worked closely with all clients to prevent any defaults from happening on loans already taken as well as continuously assessing the impact of the drought on local production.

Furthermore, many cooperatives have experienced problems accessing loans from commercial banks due to the problem of double lending. Banks have started to refuse loans to cooperatives, if any of its members have already taken a business or consumer loan with the same bank. From Mercy Corps’ point of view, the loans are taken by different legal entities who provide a completely different set of collateral for each requested loan and the decision to refuse the loan seems to be based on invalid conclusions. However, Mercy Corps does not want to influence the bank-client relationship directly and has therefore abided by the decisions made. Mercy Corps continues to work with all banks involved to clarify this issue as a difference in decision making has been observed between the banks and to make sure that good business ideas, articulated in a well written business plan, receive appropriate funding for the subsequent implementation.

Table #13. Summary of Loans Comparing 2007 with 2006

Total size of loans, Average size of loan, Client's # of loans MNT MNT collateral % Year 2007 (3rd Quarter) 33 81,772,800 2,477,964 67% Year 2006 (3rd Quarter) 17 57,077,874 3,357,522 63%

Table #14. Details of the borrowers that are having difficulties repaying their loan:

Name Business activity Details "Hangain Tushig Felt production The "Hangain Tushig Undur" cooperative had taken an initial loan Undur" in Dundgobi of MNT 3.3 million from XAC bank with 60% cash collateral aimag provided by Mercy Corps. However the client had failed in 2006 to repay the loan, exceeding possible time limits. The bank had sued the cooperative and the court issued a decision on July 24, 2007 obliging the cooperative members to pay money claimed by the bank. Defendant Yadamsuren has paid MNT 600,000 to the 15 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

bank in the late August and then moved to Ulaanbaatar. After a long period trying to find him, the program finally contacted him and he promised to come to the aimag on October 10. The aimag office will arrange repayment of outstanding balance then. Now the business has an outstanding amount of MNT 2.0 million. "Ih Uul" in Noodle production "Ih Uul" has paid MNT 2,0 million in September and currently Bayanhongor aimag has MNT 1,2 million due for final payment.

Table #15. Equipment Facilitation During the Third Quarter

Price of Client type Price of Price of purchased equipment equipment Cumulative No Aimag projected purchased in amount HB NHB equipment July August September 3rd quarter 1. Bayanhongor 25 9 90,844,800 16,460,000 0 0 16,460,000 54,473,000 2. Dundgovi 47 7 100,511,300 150,000 0 5,651,500 5,801,500 36,295,500 3. Govi-Altai 40 9 141,620,000 20,368,000 10,523,000 26,984,000 57,875,000 122,197,900 4. Govi-Sumber 16 4 104,771,700 5,485,500 17,450,000 2,250,000 25,185,500 53,451,640 5. Umnugovi 28 11 97,106,200 770,000 15,011,500 7,495,000 23,276,500 45,458,500 6. Uvurhangai 27 8 65,132,000 17,806,500 0 0 17,806,500 36,417,500 TOTAL 183 48 599,986,000 61,040,000 42,984,500 42,380,500 146,405,000 348,294,040

Table #16. Summary of Equipment Facilitation Comparing 2007 with 2006

Total price of purchased # of groups/coops engaged in equipment, tools, drugs and other equipment facilitation inputs Year 2007 (3rd Quarter) 88 146,405,000 Year 2006 (3rd Quarter) 28 21,678,000

In the reporting quarter the equipment and production input worth MNT 146,405,000 ($124,072) was purchased. Cumulative equipment purchase has reached MNT 348.3 million ($295,164) or 58% from the total plan for 2007. The third quarter has mostly seen the purchase of equipment for crop production, milk and dairy processing, bakery production as well as purchase of elite animals, veterinary drugs, block production machine and hotel furniture.

In an effort to facilitate the establishment and to strengthen existing aimag-based input suppliers, six equipment suppliers selected in 4 aimags (Dundgovi, Govi-Altai, Umnugovi and Uvurhangai) were involved in the September market fairs organized in respective aimags where they made contracts on supply of equipment and inputs with some clients. During the Market Day event in Uvurhangai aimag, a fair to promote equipment that was not being used was organized with good results. 29 organizations and individuals took part in the fair displaying their unused equipment of 30 types with a total value of MNT 42.4 million ($35,871) of which the equipment worth MNT 40 million ($33,898) was sold.

16 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

ACTIVITY FIVE: TECHNICAL ASSISTANCE AND TRAINING FOR NON-HERDER BUSINESSES

Targets: • 75 long-term clients and 17 short-term clients receive no less than 167 trainings & consultancies in 2007 with 45% of consultant fee covered by long-term clients; • 70% of total clients produce a new product & service & increase quality of product & service.

Last reporting Progress during Indicators Progress to date period quarter reporting period Number of trainings & consultancies 115 42 157 conducted (LTTA & STTA) # of clients attended (LTTA & STTA) 166 199 365 Quality of trainings & consultancies 93% 94% 93% (Average form A score) % of local consultant and MC staff 57 (50%) 24 (57%) 81(52%) provision % of cost share 48.9%* 48.2% 48.5% # of trainings conducted by Mercy 21 3 24 Corps staff New product & service produced as a result of received trainings & 11 27 38 consultancies*

*In the I and II quarters non-herder clients paid an average of 48.9% of their cost share.

During the quarter a total 42 training and technical assistance interventions were provided to 199 participants in six Gobi aimags. The 42 activities covered 14 different subjects as requested by the clients, and the quality of the training and technical assistance was 94% on average as evaluated by the participants. The marketing trainings were frequently demanded, demonstrating the commitment of the rural businesses to increase sales of their goods, improve product packaging and promotion and link to the regional and Ulaanbaatar markets.

A training for young herders was organized in the Umnugovi and Dundgovi aimag centers, engaging 21 young herders and business operators. The business management training in Dundgovi aimag has been conducted by a aimag-based consultant D. Battumur, program representative L. Daanii and program officer O. Saruul over 5 days. The young people involved in the training have developed a draft business plan building upon each individuals business ideas. 5 of them had clear business targets and were willing to cooperate with the program, therefore, they have improved their business plans and submitted application to be selected as GI clients in 2008.

Bayanhongor aimag based "Ih Halbagant" LLC received a consultancy on camel milk processing technology and organization of production process in milk processing workshop on July 04-08. The consultancy wa attended by "Ih Halbagant" LLC director A. Tsetsgee, employees Yo. Nansalmaa and Chimgee, during which 70 liters of camel milk was processed, a trade fair with a variety of products such as yoghurt, sour cream, milk drink, carrot cooked in whey and apple jam was organized, making 100% sales of all displayed products, and receiving 100% assessment from the participants.

Table #17. Training and Technical Assistance Provided to Long-Term Non-Herder Businesses

Consultancy Topic Client Name Consultant Camel milk processing "Ih Halbaganat" LLC, BH UB technology Bakery technology "Ih Halbaganat" LLC, BH; "Garyn Buyan Baidrag", BH; UB "Bayan Tsagaan", UG Block production technology "Choijin Dalai", UG UB Computer service "Tuguldur", UG Aimag

17 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

Dairy processing technology "Goviin Orgil", UG; "Suun Dalai" LLC, UH UB & Aimag Disinfection "Tugs Gun", UH UB Financial management Amarjargal, DG; "Uguumur", BH; "Buyant Tavan Buural", Aimag BH Hair style and care "Choir Badmaarag", GS UB "Sor", GS Intermediate level accounting "Itgel Zutgel", "Zambagyn Tal", "Burhant Shashir", DG Aimag Legal entity formation Erdenee, GA Aimag (GS) Marketing "Itgel Zutgel", "Zambagyn Tal" "Burhant Shashir"; Aimag "Borgiot", DG; "Nomin Huh", BH Production management "Bayart Olon" LLC, GA; "Shargal Naran" LLC, GA UB Public catering technology "Borjigon Tumen" LLC, GS UB Sales and marketing "Tahilgat Bayan Hairhan", UG Aimag Sour cream production "Suun Dalai" LLC, UH Aimag technology

Table #18. Details of Short-Term Technical Assistance Provided by GI

Consultancy Topic Client Name Consultant Bakery technology "Tod Saihan" (2), "Goviin Undraa"; "Nomin", UG; UB "Dal Huudas" (5), UG Dairy processing technology "Oyut" (1), UG UB Greenhouse construction "Tsoodol" (2), UH UB Milk processing technology Herders (8), UG Aimag Modern shoe making technology Boot makers (11), GA UB NGO management BDS providers (20), DG UB PHARAD training Health hygiene teachers of the soums (22), GA; Aimag Veterinary specialists of the soums (21), UG; Veterinary specialists of the soums (24), BH Public catering technology "Delgereh" (2), GS UB Racing horse tending, treatment "Munh Alirs" (8), UH UB Vegetable pickling Vegetable growers (22), UG Aimag Young business operators training Young businessmen/women (14), DG; Young Aimag businessmen/women (7), UG

18 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

ACTIVITY SIX: LOCAL CAPACITY BUILDING FOR TRAINING AND TECHNICAL ASSISTANCE

Targets: • All aimag-based consultants who conducted no less than 5 trainings & consultancies will be certified; • More than 70% of total trainings & consultancies will be conducted by aimag-based consultants.

Last reporting Progress during Indicators Progress to date period quarter reporting period Number of local consultants 148 16 164 Number of aimag-based consultants certified 1 0 1 Number of local consultants who provided more 14 5 19 than 5 trainings % of local consultants with more than 5 trainings 9,4% - 11,6% Number of capacity building training activities 6 2 8 % of trainings & consultancies provided by local 48.4%* 56.6% 50.3% consultants (not including GI staff) % of UB consultancies accompanied by a local consultant counterpart 18% 5,3% 8,5%

* the percentage of trainings and consultancies provided by local consultants in the first half of 2007 was 48.4%

No aimag-based consultants were certified in the 3rd quarter. The program is currently developing a new approach to consultant certification which will be implemented in the fourth quarter. 17 local consultants with more than 5 trainings will be engaged in this new certification process in November and December. This certification process will focus on Training Methodologies and Adult Training. Teachers from the Mongolian National University of Education will conduct the training for local consultants and will require all participants to complete a test and submit a report. Participants will be certified based on the results of the implementation of the test given during the training.

Two capacity building exercises for Aimag-based consultants were organized during the quarter. • In order to facilitate prompt solution of numerous issues defined in the soum master plan, 6 local consultants have been trained on project development and fund-raising methodology. The training was attended by Galsanchoimbol, Javzandulam, Tegshbayar, Ariunaa, Munhjargal and Enhtuya from Govi- Altai, Uvurhangai, Govi-Sumber, Umnugovi and Bayanhongor aimags.

• A 4-day training on greenhouse and fruit/berry cultivation organized by Mongolian National University of Agriculture on July 23, 2007 in Ulaanbaatar was attended by local consultants S. Soyolmaa from Govi-Sumber, D. Lhagvajav from Uvurhangai and J. Enhjargal from Bayanhongor who have upgraded their knowledge and skills related to greenhouse fruit/berry plantation and cultivation to provide consultancy to berry and vegetable growers.

During the first three quarters of the year, a total of 550 training and technical assistance interventions have been organized and provided to the Gobi Initiative herder and non-herder clients. Out of this 550 activities a total of 380 (69.2%) were provided by aimag-based consultants. The program will continue to focus efforts to enhance the skills and marketability of the aimag-based consultants and technical assistance providers. The long-term goal is the establishment of a cadre of qualified local aimag-based providers, and an ability to directly source essential consulting and technical services, whether locally, regionally or nationally. The availability of these professionals at the aimag level is key to ensuring some degree of sustainable business development services (BDS) in the future years.

The program continues to work closely with identified and interested aimag-based organizations to stimulate the commercial provision of Business Development Services (BDS). Anecdotal evidence from the USDA funded RASP program indicates that BDS providers manage to increase training fees, decrease training costs and make a profit of the provision of training and technical assistance with increasingly limited financial support from Mercy Corps in the form of income subsidy. Mercy Corps hope to stimulate the long term 19 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report provision of BDS services in Gobi aimags and by doing so, stimulating the sustainability of the activities and results initiated under the program.

ACTIVITY SEVEN: MARKET DEVELOPMENT

Targets: • 130,000 people attend 18 market events in 6 aimags with sales of over 400 million MNT in 2007 (UB-1, aimags-4, regional -2, Saturday-11); • 13 market researches on local leading products will be conducted; • Feasibility study into organic production certification conducted; • Sales from new markets exceeds 20mln MNT.

Last reporting Progress during Indicators Progress to date period reporting period Number of market days organized 5 16 21 Number of exhibitors 290 1,060 1,350 Attendance of market day events 24,500 64,934 89,434 Sales at market day events (incl. 193,768,373 357,262,760 551,031,133 contracts and facilitation) 9.6 MNT per 1 MNT 10.4 MNT per 1 MNT 10.1 MNT per 1 MNT Ratio of sales & costs of cost of cost of cost Number of contracts made during the 25 252 277 events Value of MC contribution to MD 2,007,760 7,058,931 9,066,691 costs Amount & value of products sold at 57,915,700 3,594,918 61,510,618 regional markets through facilitation & contracts

MARKET FAIRS

Table #19. Overview of Market Day results by year

# of Total sales, Average sales, Table #19 shows a significant rise of major indicators

exhibitors mln MNT МNT of the trade fairs held in 2007 against the first market 2004 538 123,7 230,000 events for locally produced goods in 2004 in terms of 2005 1048 241,5 230,400 number of participants, types of showcased products 2006 1196 399,2 333,800 and amount of sales. The rural businesses, in order to 2007 1350 551.4 408,171 participate in such fairs and generate larger income through selling their products, currently ensure proper preparations by increasing production volume, paying more attention to product quality, improving packaging and applying a variety of methods for the promotion of goods. The increased understanding of the value of the market events has yielded results for the clients, with an average sale of MNT 408,171 made by one participant at a market fair in 2007, this is an increase of 67% over 2004 indicators. The engagement and participation of local government organizations and businesses in organization of the market fairs and their willingness to provide a major part of the needed funding has considerably been increased over the last period. Mercy Corps Mongolia believes that this is very important accomplishment with regard to the sustainability of the market days beyond the life of the program.

During the third quarter of 2007 a total of 16 market days have been organized throughout the 6 Gobi aimags.

20 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

Table #20. Overview of Market Day events in 2007

Aimag Market Event Bayanhongor "Bayanhongor partnership - 2007" Market Days in 7 soums Dundgovi Dundgovi - "Dundgovi Partnership - 2007", Trade fair in Saihan-Ovoo soum respectively Govi-Altai "Altai Partnership - 2007", "Western Region's Consumer Services - 2007" fair, Chandmana soum - "One Soum - One Brand, One Household - One Product", Govi-Sumber "One Soum - One Product" Uvurhangai "Uvurhangai Partnership - 2007", Umnugovi "Gobi Festival - 2007" trade fair,

The representative office in Govi-Altai aimag following the request made by aimag's Association of Production Cooperatives in July has co-organized a "Western Region's Consumer Services - 2007" trade fair on July 04. 16 tailors from 7 cooperatives that provide consumer services in Uvs, Bayanhongor, Hovd, Umnugovi and Govi-Altai aimags took part in the trade fair, generating totally MNT 265,000 in sales. Mercy Corps paid 11% or MNT 153,500 of the total cost of organizing the event and spent that portion for advertisement of the event. The Governor's Office has shared the cost of the fair with MNT 500,000, Mongol Post and Xac banks with MNT 1,0 million each. In addition, MobiCom, Unitel, "Zaluur Altai", "Shadar Tuslah" and MC client "Airgiin Had" LLC in particular have sponsored with MNT 250,000. Simultaneously, the aimag also hosted "Goyol - 2007" fashion show of the western region that was a success as well. The designers who participated under three nominations (national garment, casual wear and festive attire) have selected the best designs. A collection of national garments of the Ulaanbaatar based "Mongol Costumes" company was also displayed much to the delight of the visitors to the trade fair.

In order to promote the collaborative efforts of government, NGOs and international organizations on the development of new age herder businesses, "One Soum - One Brand, One Household - One Product" trade fair and "Herders of New Age and Business" forum took place in August 2007 in Chandmana soum of Govi- Altai aimag. The trade fair and forum were co-organized by Mongolian Red Cross Society, its branch in the aimag, Mercy Corps and Swiss Agency for Development and Cooperation (SDC). At the forum and trade fair were present Member of Parliament and President of Mongolian Red Cross Society L. Odonchimed, General Secretary of Mongolian Red Cross Society P. Samdandorj, Representative of International Red Cross and Red Crescent Movement in Mongolia Thor Danielsson, State Secretary of Ministry of Food & Agriculture N. Batsuuri, Country Director of SDC Markus Dubach, Mongolian National University of Agriculture Ph.D. Ts. Nansalmaa, B. Dorj, Capital City Children & Youth Department Head Altantsetseg, State Emergency Office officer B. Turbat and Executive Coordinator of Gobi Initiative Ch. Sansar. In total, 24 local producers from three aimags have participated in the trade fair, displaying a variety of products with a total value of MNT 15.9 million and selling MNT 4.6 million worth goods (28,9% of total products). During the trade fair 78 entities and individuals received orders for the production of goods with a value of MNT 989,000.

The soum based market fairs were successfully organized on August 01-15, 2007 in Erdenetsogt, Bayanbulag, Baatsagaan, Galuut, Gurvanbulag, Shinejinst and Jinst soum centers of Bayanhongor aimag. These market events were co-organized by the aimag Governor's Office, a council of "Best Product" movement and Gobi Initiative program. The main goal of market days was to select the best product for regional level "One Soum - One Product" market day, to sell a specific product at the regional market and to become a well-recognized producer among the residents. 97 businesses from the above 7 soums have participated in the events, showcasing 57 varieties of products and generated MNT 1,364,000 in sales. The events included 14 clients of GI (3 herder and 11 non-herder businesses) who displayed 26 varieties of products and generated sales of MNT 225,100.

At the annual market fairs held throughout the 6 aimags during September, a total of 956 economic entities and business operators have participated and generated a total of MNT 548,406,133 in sales. The "Dundgovi Partnership - 2007" trade fair has been attended by USAID Program Manager Jon O'Rourke, Members of 21 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

Parliament S. Narantsatsral and R. Raash and the Mercy Corps private donors. The "Altai Partnership - 2007" trade fair was visited by the Ministry of Construction and Urban Development's Department Head and diplomat L. Galbadrah. The "Gobi Festival - 2007" trade fair was visited by Ministry of Food and Agriculture's Policy Implementation Coordination Department Head N. Bayanmunh. The market day in Govi-Sumber aimag was visited by U.S. Ambassador Mark Minton and Member of Parliament L. Odonchimed. The “Bayanhongor Partnersip 2007” was visited by Member of Parliament G. Zandanshatar. A summary for the 6 main aimag market events is attached as annex 1.

The financial and organizational engagement of Mercy Corps in the market fairs has decreased this year in comparison to previous years. The percentage of Mercy Corps funding for the 6 large-scale market days in 2006 was 25.6% of the total costs, and in 2007 it has been reduced to 20.0% of the total costs. Based upon the improved awareness and accountability of local business entrepreneurs, government organizations and NGOs towards the market days as an event that benefits the public and small and medium sized businesses.

The "Mazar Devshil" cooperative from Tugrug soum, "BVG" partnership of Arvaiheer soum, "Munh Nogoon Mandal" cooperative of Nariin Teel soum, Harhorin soum based "Dalain Tsamba" from Uvurhangai aimag as well as "Dalan Od" LLC from Bulgan soum and Dalanzadgad soum's "Goviin Jiguur" LLC from Umnugovi aimag have participated in the "Autumn's Green Days" trade fair on September 21-28 in Ulaanbaatar. During the market fair the clients from Uvurhangai aimag made sales totaling MNT 5,682,000, and the airag from Burd soum took a special prize. Umnugovi aimag's Bulgan soum based "Dalan Od" LLC has not only promoted their own planted baby onions, but sold 1,500 kg of tomatoes generating MNT 3 million in total, while "Goviin Jiguur" LLC sold bottled camel airag and aaruul making in total MNT 750,000 in sales.

On July 05, a meeting was organized in Ulaanbaatar involving 13 people including 6 berry suppliers and 7 consultants from Arhangai, Bayanhongor, Zavhan and Uvurhangai aimags and the managers of Ulaanbaatar based berry production company "Beneduct". The objective of the meeting was to facilitate market linkages between the producers and Beneduct. The participants visited the company, had a meeting with the company leadership, were introduced with the production activities and standards set by the company, resented their own activities to the company, and discussed constraints and other issues of supply of fresh berries. As a result of the meeting the participants Uvurhangai's "Suun Dalai Travel" company as well as the business owners from Uvurhangai and Bayanhongor aimags signed written and verbal agreements with the company to supply fresh berries in September and October.

Mercy Corps office in Govi-Altai aimag in cooperation with "Altai Swiss Foundation" held a meeting of barley growers and producers in Altai town, on July 28, 2007. The goal of the meeting was to facilitate a meeting of the barley growers with the producer of the barley-made "Ashvai" brand biscuits and to establish market linkages. "Altai Swiss Foundation" executive director Ch. Tsetsegmaa and the "Ashvai" producer "Haltar Arvai" LLC representative participated in the meeting, exchanging ideas with 7 crop producers from Taishir, Haliun, Sharga and Yusunbulag soums. "Haltar Arvai" company is a daughter company of the Ulaanbaatar based "Ihen Hangai" LLC which bought a license for "Ashvai" brand in 2006. "Haltar Arvai" company makes their products in Altai town employing 16 people. The products are sold in Ulaanbaatar and the company has supply contracts with nearly 40 retail shops. In 2006, "Haltar Arvai" has supplied "Ashvai" cookies to the secondary schools Nos 2 and 3 in Altai town under the School Tea Snack program. The schools have asked the company to increase the amount of products to be supplied, however the company is not able to increase the volume of production due to a shortage of raw materials. In order to maintain continuous production and increase supply, it is imperative that they are able to procure greater quantities of barley. "Haltar Arvai" company has a plan to buy 40 tons of barley in 2007, and made purchase contracts during the meeting with producers for the supply of 20 tons of barley.

Two market-linkage meetings were held in Ulaanbaatar concerning food products and handicrafts. The goal of these meetings was to link rural producers to new markets, to enable buyers to clarify the terms and conditions under which they are willing to purchase products from the rural producers and to promote long term relationships with Ulaanbaatar based buyers. The meeting for food products was held on 21-22 August in Ulaanbaatar with participation of 19 businesses from 10 aimags (Umnogobi, Dundgobi, Hovd, Gobi Sumber, Bayanhongor, Gobi Altai, Uvurhangai, Arhangai, Sukhbaatar and Zavkhan) and 10 Mercy Corps program officers. Ulaanbaatar companies engaged in the food sector including; Minii delguur supermarket chain, Nomin Foods company, Mon Enzyme LLC, Mon cream LLC and Nomads group presented their

22 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report activities and met with the producers. 6 producers (2 from Gobi Altai, 2 from Gobi Sumber, 1 from Uvurhangai and 1 from Bayanhongor) agreed to sign contracts for the supply of "vegetable flavored curd" (aartstai amtlagch), meat, cakes and cookies, "Camel milk yogurt" and watermelons. The meeting for handicraft products was held on 23-24 August in Ulaanbaatar with participation of 28 businesses from 10 aimags (Umnogobi, Dundgobi, Hovd, Gobi Sumber, Bayanhongor, Gobi Altai, Uvurhangai, Arhangai, Sukhbaatar and Zavkhan) and 10 Mercy Corps program Officers. Ulaanbaatar companies engaged in the sale of handicrafts such as Open Steppe company (e-commerce); Mary & Martha Mongolia; Wool craft producers support center NGO; Grassroots souvenir shop of XAC bank and Nomin souvenir shop presented their activities and met with the visiting businesses. At the meeting Intelligent Property Ownership Office provided information on copyrights and two Ulaanbaatar consultants provided information on product and logo design. During the meeting direct sales worth MNT 143,500 ($120) and 3 contracts (1 producer from Gobi Altai, 1 from Umnogobi and 1 from Dundgobi) to supply camel yarn and general souvenirs to Open Steppe were signed with a total value over MNT 4.0 million ($3,400). 2 other clients (1 from Hovd and 1 from Bayanhongor) have been asked to present more samples after revision of which a contract remains a possibility.

The representative office in Govi-Altai aimag has organized a meeting of some herder business clients and the management of secondary schools of Altai town on August 28, and discussed possibilities of supply of herders' produced foodstuffs for "School Snack" program. In the course of meeting GI client "Hoilogt Altai" company, "Buraatbulag" and "Ariunsaam" cooperatives presented samples of their products such as packed yoghurt, milk, camel milk, aaruul, "Tulga Altai" company and "ST Bakery" - rolls and other bakery goods, and informed the school management of possible procurement amount, quality and price quotation. The school principals informed the producers on the types of needed products, amount and standards as well as shared some problems they have faced before. The meeting has been productive, with a number of agreements made as below:

• It has been agreed that "Buraatbulag" cooperative will supply a camel milk on one day and a camel airag on next day to the secondary school No. 1 on Mondays and Thursdays, to the school No. 2 on Tuesdays and Fridays, and to the school No. 5 on Wednesdays starting September 01, 2007 until March 01, 2008; • "Hoilogt Altai" company will supply packed milk, milk with honey and aaruul to the secondary school No. 3 starting from November; • "Ariunsaam" cooperative will procure 70 liters of cow milk to the school No. 1 once a week starting October 01; • "Tulga Altai" will proceed with the negotiation on supply of bakery foods and hot sea-buckthorn juice to the schools of Altai town; • "Sutai Bakery" will supply cookies to the school No. 2.

The Uvurhangai aimag's "Bulgiin Undraa" group, Bayanhongor's "Bayantsagaan" group and Govi-Altai's "Chuluundens" partnership have sold MNT 47,918 ($41) worth of products to the "Snow Leopard Conservation Fund" NGO for sale in the United States. Dundgovi aimag has facilitated a handicraft and souvenir producer D. Ulziihishig linking her products with a souvenir shop which serves the foreign tourists, that resulted in receiving orders for and sale of felt products with a value of MNT 150,000. The aimag representative, Ulaanbaatar and local program officers have facilitated two meetings with Oyu Tolgoi's contracted CIS LLC director and a procurement officer Bayar, and agreed on sale and purchase of the vegetables from our clients. In accordance with the verbal agreement on supply of vegetables to Oyu Tolgoi, Umnugovi's "Tusgats" master herder Bataa has stored 1600 kg of vegetables with a total value of MNT 1.8 million and supplied the vegetables in August to Oyu Tolgoi. In addition, GI clients "Anh San" cooperative supplied 836 kg of tomatoes and "Tusgats" group 700 kg of vegetables and on September 03, "Tusgats" patent holder has supplied MNT 1,855,830 worth (potato - 688,5 kg, tomato - 836,5 kg, cucumber - 50 kg, cantaloupe - 74 kg) and on September 17 MNT 2,459,010 worth (cabbage - 501 kg, carrot - 205,6 kg, potato - 715 kg, onion - 97,9 kg, watermelon - 111,6 kg, tomato - 1052 kg) vegetables to Ivanhoes Oyu Tolgoi mine. The cooperatives have agreed to supply more vegetables in October to the mine.

23 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

ACTIVITY EIGHT: LOCAL GOVERNMENT SUPPORT FOR BUSINESS

Targets: • 6 aimag & 30 soum government offices deliver improved services for business; • 13 soum Master Plans developed, approved by Hural & implemented.

Last reporting period Progress during Progress to Indicators reporting period date Number & type of local government 1092 158 1250 officials trained (tax, land, other) Total Number of participants in 1204 178 1382 training and consultancies Number of trainings/consultancies held 58 8 66 Number of soums & aimags 7 soums 31 soums 30 soums, 6 aimags / 6 aimags / 6 aimags Quality of service Number of days to register business* 2 days 0 2 days Number of land use licenses issued 57 0 57 Master Plans developed, approved & 3 7 10 implemented Number of participants in MP 266 0 266 development Number of soums, organizations and 1 soum, 20 11 soums, 132 11 soums, 112 people persons who received consultancy people people

In the GI target aimags from the beginning of the year 65 training workshops and consultancies on 11 various topics were implemented in 31 soums involving over 1,382 local civil servants. Out of a total organized trainings, 24 training events were delivered by the local aimag-based consultants, 24 by UB-based consultants and 18 by Gobi Initiative staff. A total of 1,250 people have participated in these events (See table 20).

Table #20. Number of Government Employees Involved in Training and Technical Assistance

Other Supervisory Bodies (60) Tax (104) Other Government PIA (144) Organizations (393)

Aimag & Soum Governor's Office (681)

Of the target 14 soum master plans to be produced, in the third quarter 7 soums (Haliun soum, Govi-Altai; Adaatsag and Saihan-Ovoo soums, Dundgovi; Hurmen and Bayandalai soums, Umnugovi; and Shivee-Govi soum, Govi-Sumber and Tugrug, Uvurhangai aimag) have approved their master plans at the enlarged and chairmen's meetings of respective Citizens Hurals, and a total of 10 soums began implementing their plans. In order to facilitate resolving the issues identified in the master plans, 6 local consultants have been trained and have increased their capacity in project development and fund-raising methodology. These consultants will now work with these soums to help them identify and raise funds for the implementation of their plans.

24 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

In Uvurhangai the tax department have established a 'one-stop-shop'. The objective of the 'one-stop-shop' is to provide citizens and businesses with information on the tax laws, completion of tax returns and the ability to answer questions efficiently and effectively. During the quarter the program organized a study tour for the tax inspectors from the other 5 Gobi aimags to the Uvurhangai tax office and the 'one-stop-shop'. As part of the programs plans for the fourth quarter an action plan has been developed to work with the five aimag tax offices to assist them to establish similar 'one-stop-shops'. Combined with the establishment of the office space, the program will provide training to the staff of the tax department and also disseminate information to the general public and the business community.

A large number of rural businesses need to improve their knowledge of the existing legislation and standards related to public health and safety and how to comply before they start their business. Therefore, Mercy Corps has planned to launch a Public Awareness Campaign on The Existing Standards related to Public Health and Safety for rural businesses and residents in all target aimags. The campaign will be implemented from October 2007 until December 2007. The campaign aims to clarify existing legislation and standards, to clarify responsibilities of both businesses and local government, to solve any apparent conflict between them, and to promote that businesses comply with existing government legislation and standards.

Mercy Corps is collaborating with the State Professional Inspection Agency and National Standard and Measurement Center in both Ulaanbaatar and at the aimag level to run the campaign. During the reporting period, the implementation plan for the campaign has been developed in cooperation with the partner organizations. To prepare for campaign activities, the contents of a brochure, video, poster and stickers have been prepared and an agenda for the trainings that will be provided to businesses and government officials has been developed.

25 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

INTERMEDIATE RESULT 1.3-2 INCREASE IN AVAILABILITY, ACCESS TO AND USE OF INFORMATION

ACTIVITY ONE: BUSINESS INFORMATION

CRSP Forage Forecasting Rangeland conditions for reporting period During the reporting period the rangeland conditions in Gobi aimags compared with the long-term average were very poor. The pasture condition during the summer period for almost the whole Gobi region experienced long periods of high temperature and very low precipitation. Across Gobi-Altai, Dundgobi, Gobi-Sumber and the southern part of Uvurhangai the pasture condition is very poor with low productivity. The following two maps illustrate the rainfall deficit over the Gobi Region and the total forage available in comparison to the long term average.

Rainfall deficit map for late August-beginning September 2007

26 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

Gobi Forage Product Development Targets: • Collected field data from 121 sites for map verification and for site monitoring • Produced 1,250 maps - each set consists of 4 maps and the sets are delivered every month to 130 soums by postal service

Indicators Progress during Progress to date reporting period Number measured sites 96 96

Number of verified sites in the 96 96 Database Number of sites entered into Gobi 50 121 Forage Database

Number of maps printed 1250 1250

Number of published books & Scientific presentation In progress articles in scientific journals about GF products & PHYGROW model in progress to be presented in National RS conference in December

In the third quarter the Gobi Forage team have collected field data and verification data for the model and maps production from 96 sites. Using this data and the current PHYGROW model the team have produced maps on a bi weekly basis, with the maps available on the website. The maps produced include: 1. 60 days forecast total forage available (deviation from long term average) 27 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

2. 60 days forecast total forage available 3. Total forage available (kg/ha) 4. Total forage available (percent difference from previous 15 days) 5. Vegetation Greenness, deviation from Long term average (%) 6. Vegetation condition index 7. Night time temperature 8. 15 days CMORPH rainfall (mm) 9. Annual Rainfall surplus/Deficit (mm) 10. Total Forage available (kg/ha) and Snow extent

Gobi Forage Product Dissemination

Targets: • 80% of the Gobi herders reached by radio programs with info on forage condition & forage forecast • Two times info on GF products & pasture forecast broadcasted via TV9 channel • 1250 maps delivered to respective sums in 8 aimags with map explanation key • Organized training for local officials & herders in 7 Aimags

Indicators Progress during reporting Progress to date period Number of listeners who know 142 142 the schedule of Gobi Forage bulletins 10 10 Number of maps distributed 1800 1800 No & type of recipients Aimag, sum, bag governor, 5 people (to be distributed to Agr. officer, env. inspector, public), total 540 people- each land officer, meteorological month observer Number of trainings 52 52 Number of sums posting maps 30% of the 96 sums 30% of the 96 sums on info board No & type of people trained by Aimag, sum, bag governor, 24 Gobi Forage staff Agr. officer, env. inspector, land officer, meteorological observer, herders Status of hand-over the GF Organized meeting for The guidelines for project collaborating & interested organizations interested to organizations about GF host GF project under methods & products development & to be distributed to organizations

During the reporting period the Gobi Forage team printed on a monthly basis a set of four maps. These sets of maps were then distributed to all 130 soums in the target Gobi region by the Mongolian postal services. The maps printed and distributed included: 1. 60 days forecast total forage available (deviation from long term average) 2. 60 days forecast total forage available 3. Total forage available (kg/ha) 4. Total forage available (percent difference from previous 15 days) The set of maps produced during April 2006- September 2007 has also been provided to officials from Ministry of Food & Agriculture, the President Office, Agency for Land Affairs, Geodesy & Cartography, Agricultural University, RIAH, Institute of Botany and other international projects including the SDC "Green Gold" project and the UNDP "Sustainable Grassland Project". The distribution of the maps has been accompanied with a training program provided at the soum level. The participants in the training included the soum governor, land officer, environment officer, agriculture officer, bagh governors and interested herders. The training is designed to teach the participants how to interpret the maps and make decisions

28 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report based on eth information contained in the maps. Training was provided in 96 soums across the target aimags. The Gobi Forage team have also produced in partnership with Pact and the RBN radio a series of radio programs that provide the information taken from the maps for herders and other interested listeners of the radio. Twelve radio bulletins have been produced on forage condition and forage forecast were developed, recorded and broadcast during the quarter (see section on information dissemination in collaboration with Pact below).

Institutionalizing the Gobi Forage project In recognition that the Gobi Forage project produces information and products that are of value to the nation and for the future sustainability of the project Texas A&M and Mercy Corps are committed to the institutionalization of the project within a Mongolian institution or entity. As part of this process a first workshop to present Gobi Forage project, activities and future plans was held in the last week of September. Representatives from collaborating & partner organizations such as RIAH, Institute of Botany, Swiss Development Cooperation- Green Gold project, Ministry of Food & Agriculture- department of Pasture & food production, Agency for Land Administration, Geodesy & Cartography, Geoinformation project (Dutch Government) and Agricultural University (School of Agrobiology) attended the workshop. The main conclusion from meeting was the need to select a potential organization that has the capacity to carry out future activities of the project on forage and forage forecasting mapping, database development and collection of field biomass data. Some concerns expressed by the participants were about existing and potential users and distribution of information via the information network to be established by the Dutch project or through using existing government networks and internet resources. As part of the next step in the process the Gobi Forage project will develop a package of materials and invite interested Mongolian agencies and Institutions to send in a proposal to host the Gobi Forage project. The Gobi Forage project is also in discussion with the World Bank and the Sustainable Livelihoods Project to secure future funding to expand the work of the project to additional aimags and to also support the institutionalization process into a Mongolian agency or institution.

Monitoring & evaluation of GF products usage Target: Appropriate tools developed & tested for monitoring & evaluating Gobi Forage product usage

Indicators Progress during reporting Progress to date period Status of monitoring tool Baseline survey developed Data entering into database development Trip of evaluation team settled Starting last week of October Itenary set, aimags and sums for evaluation survey is selected.

In order to assess and evaluate the timeliness, appropriateness, accuracy and use of the Gobi Forage maps and radio programs a baseline survey has been collected from all participants in the training programs. The data has been collected from more then 250 people and entered into a database. In the fourth quarter of the year a comprehensive evaluation of the Gobi Forage project will be conducted by a lead consultant from the US and two national consultants. The evaluation will focus on these aspects: • Timeliness of dissemination and receipt of Gobi Forage products by the target user groups • Accessibility of the information. Are the target groups able to obtain the Gobi Forage products in forms they could utilize for decision making? • Appropriateness of the information. Are the target groups able to understand the Gobi Forage products and was it useful in their decision making? • Accuracy of the information. What is the perceived accuracy of the Gobi Forage information by the target groups? • Relevance of the information. Were the Gobi Forage products relevant to the various situations encountered by the target groups?

29 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

• Usage of information. Were the target groups able to apply the Gobi Forage information to their decision making process and were any decisions directly influenced by the Gobi Forage products? • Effectiveness of Training. Was training in the use of Gobi Forage products effective in interpretation of the information and possible decision alternatives? The final report from the evaluation will be available by the 15th December 2007.

PACT / RBN ACTIVITIES

CRSP Forage Forecasting

Targets: • Monthly broadcast content with forage information section • Quarterly publication in RBN magazine of forage information and maps Indicators: • Numbers of target beneficiaries who report that they can use forage information provided • Numbers of target beneficiaries who are able to better plan their forage schedule • Numbers of target beneficiaries reporting greater success in difficult forage conditions • Numbers of target beneficiaries who report averted crisis due to forage information received from RBN products • Numbers of target beneficiaries reporting an increased awareness of forage issues

Pact Mongolia continued to disseminate Gobi forage forecasting products along with satellite fodder and weather data to target audiences. Herders, business operators and local government officials in six Gobi aimags were able to access sixty-day rangeland forecasts through radio and magazine. These forecasts would assist the users in making timely and specific management decisions.

The Rural Business News radio program, including all segments, accounts for approximately 260 minutes of Mongolian National Public radio airtime per month. The Gobi Forage information segment continued to be broadcast for ten minutes each Wednesday, four times a month. Production was carried out at Pact radio studio in collaboration with Gobi Forage team.

Gobi Forage content covered two full pages of the quarterly Rural Business News magazine. The print run was 5200 copies this quarter. Entitled "The rangeland forecast for the upcoming 60 days", forage data was delivered by aimag, enabling readers to find their own aimag at a glance. These pages also contained visual maps with key explanations and analysis prepared by Gobi Forage.

Production and Dissemination of RBN Mongolian Magazine

Targets: • 6500 copies of RBN are distributed quarterly • A minimum multiple reader rate of 3 readers per copy • Ten placements of syndicated content • Positive reaction to content and style changes including contributors style development Indicators: - Number of subscriptions - Occurrences of placement of syndicated content - Percentage of target beneficiaries reporting an increased understanding of veterinary procedures, necessity and value gained from RBN magazine - Percentage of target beneficiaries attributing increased capacity and knowledge regarding livestock management to RBN magazine - Percentage of target beneficiaries reporting effective business decisions made with advice/knowledge gained from RBN magazine - Percentage of readers reporting increased income or income generation due to application of market watch information received

30 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

Pact has continued to produce its new format Rural Business News magazine. 5200 copies of edition number 55 were printed and disseminated this quarter. The total number of printed copies was decreased due to changes to the selling and distribution network through Gobi Initiative aimag offices. This distribution mechanism was discontinued as it had been fostering low level corruption. The 5200 copies that were distributed, however, are a much truer representation of distribution versus printing numbers. In the past, although higher numbers per edition were printed, up to 1000 copies were left in storage at Pact. This edition saw its entire print run sold to the extent that no copies were left for archiving at the Pact office.

Distribution of RBN edition number 55

Distribution channel Copies Percentage 1 Market watch officers 1930 37.12 2 Herders Association 801 15.40 3 Mongol Post LLC 906 17.42 4 Ulaanbaatar Post LLC 13 0.25 5 Great Mongol Post LLC 7 0.13 6 XacBank 1000 19.23 7 Direct sale 180 3.46 8 Free to USAID 5 0.10 9 Free to Pact and Mercy Corps staff 100 1.92 10 Delivered to advertisement buyers 8 0.15 11 JCS - Christian org 150 2.88 12 Archiving (sold to meet demand)) 100 1.92 TOTAL 5200 100.00

The key message & content planning session for all RBN media products was held with the close involvement of an extended range of experts in the agricultural and business sector, including marketing development staff from Gobi Initiative. Writing a business plan and raising awareness about international projects and programs in Mongolia were the emphasis of the edition. Other topics included market days schedules in Gobi aimags, tips on buying agricultural equipment versus renting, how to adjust the humidity and warmth of a vegetable cellar, financial figures on buying or harvesting grass for winter, interviews with a businesswoman regarding berry picking, preserving and selling tips and berry jam recipes. This edition also included an entertainment section with an agricultural vocabulary based crossword, jokes and the latest hit song lyrics. Edition number 55 included a total of 25 articles and interviews set alongside practical side-bars, graphs, visual explanations, cartoons and relevant photographs.

Between September 15-20 2007, monitoring was carried out in two Gobi aimags, Bayanhongor and Govi- Altai. One hundred and seven people living in both the aimag centers and a combined total of twenty-two soums provided feedback. Data was gathered on the new stylistic changes to RBN magazine, the RBN 509 service, and how option of a monthly RBN magazine.

The shared readership figure for RBN monitoring was 7.5 people per edition. This figure represents a marked increase from the previous monitoring exercise which provided a shared readership of just over two people per magazine. However, problems raised with delivery and subscription of the magazine, and the practice of reading other peoples copy of RBN in order to access the information that had not arrived, may be an integral factor in this increased readership figure.

The stylistic changes to the magazine were well received by the participants. Nearly half of respondents aware of changes found the new look magazine to be more aesthetically pleasing and fourteen percent made mention of the increase in the quality of stories and the content provided. Almost one quarter of respondents indicated that now they have begun archiving publications and refer to this mini-library when searching for information. The emphasis placed by Pact on quality and planning content with key sector experts in 2007 is showing results.

This monitoring exercise marked the first time that Pact has been able to quantify the percentage of target beneficiaries who are able to attribute effective business decisions made to RBN magazine content. The two 31 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report anecdotes, one relating a brick making business and the other a bakery, also reinforce the time that is required to develop a sound business and that this indicator is measurable at the end of a time-consuming process. Two percent of those interviewed reported sound business decisions resulting from access to information in RBN magazine. Please see attached "RBN magazine and RBN 509 monitoring report" for more detailed information.

Almost two thirds of those interviewed would like to How often would you like to receive RBN see RBN magazine published monthly. Thirty-five magazine? percent of the respondents who would like to see the magazine published monthly feel that this would Monthly allow them to access more information quicker and be 5% more season sensitive. Participants stated that they 34% Quarterly considered paying just over 500 MNT per month reasonable for the magazine, and within their means. 61% Once every tw o Herders participating in the survey stressed repeatedly months that have the most disposable income during cashmere season in spring, and that this is when subscriptions should be taken. Pact is aware of the need to tighten subscription times.

A comprehensive monitoring and evaluation report on the RBN magazine and the RBN 509 service is attached as annex 2.

Production and Broadcast of RBN Radio Programming

Targets: • 145 minimum minutes broadcast weekly • Increase in production values in programming content • Audience retention rate of 15% of Gobi residents • Increased diversity in content providers and producers • Content planning linked across Gobi media products to maximize benefits of each medium and provide harmonized information Indicators: - Positive feedback from target communities on program content accessibility - Quantification of segment categories broadcast - Number and type of new content producers - Number of target beneficiaries reporting an increased understanding of veterinary procedures, necessity and value gained from RBN radio - Number of target beneficiaries attributing increased capacity and knowledge regarding livestock management to RBN radio - Percentage of target beneficiaries reporting effective business decisions made with advice/knowledge gained from RBN radio - Percentage of readers reporting increased income or income generation due to application of market watch information received by radio - Percentage of target beneficiaries reporting effective business decisions made with advice/knowledge gained from RBN radio - Percentage of listeners reporting increased income or income generation due to application of market watch information - Number of content providers accessing Pact studios in Ulaanbaatar - Number of organizations accepting series for re-broadcast in small footprints

RBN continued to produce 260 minutes of radio programs in-house per month during the third quarter. Including repeat broadcasts, a total of 780 minutes of radio programming was aired nationwide by Mongol National Public Radio. RBN continues to broadcast every Monday, Wednesday and Friday at 07.30 am and 21.20pm. Radio programs were produced at the Pact studio in conjunction with the Communication Information Initiative Centre, a sub grantee of Pact. Programming was also received from Gobi Wave radio in Umnugovi and Orkhon Radio in Darkhan-Uul. Topics are assigned to these rural radio stations with a set

32 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report deadline. The completed programs are delivered on CD to Pact where the technical quality and content is checked.

Within the usual segments, topics covered included "The principles of running a tourist business", "What international projects and programs are active in Mongolia, and how to work with them", and "How to pick berries and sell them for better prices". The content and topics were prioritized and planned during the third quarter key message and content planning session. Content planning occurs across media with the different mediums supporting and re-enforcing each other.

Production and Dissemination of ‘Market Watch’

Targets: • 60% of herding businesses increase their ability to bargain/negotiate in sale situations • 60% of targeted businesses report increased profits • Automation of data collection and spreadsheet production • Minimal trouble shooting of data collection with automation Indicators: - Reliable supply of information from national market watchers - Numbers of business operators demonstrate an increase in their skills to produce, sell and plan accordingly based on price movement and demand/supply - Successful introduction of automated data collection and basic report output - Regularity of analysis of data over set periods for use in print publication - Number and type of media where market watch data is disseminated - Number of commodities reported on - Numbers of RBN509 users

Market Watchers across the country continued to collect daily market watch data for 64 different commodities (commodities vary according to seasonal change, for instance, grass and fodder and nutritional feed is added during winter). Market Watch information was distributed through the following channels:

• RBN Radio. A total of 39 segments were aired this quarter. Segment content included regular commodity price information as well as highlighting fodder and feed prices for herders in their winter preparations. • RBN Magazine. The magazine included a summary of market price information on beef and mutton, and compared 2006 and 2007 prices for the two commodities. The main focus of the market watch section of the third quarter was on marketing at household level business. (Two full pages) • RBN TV. The 7-minute segment produced at the Pact video studio and broadcast through TV9 twice a month included price summaries for seasonal products, trends, interviews and analysis. (A total of 6 segments) • RBN509 MobiCom SMS service. Clients are able to access market price information on demand from their cell phones with certain codes for each product by locations. (A total of 1031 commodity prices were requested)

Discussion between Pact and Mongol Content LLC, the 509 service provider, were held this quarter. The meeting looked at ways to improve the current RBN 509 SMS service for users. The meeting highlighted the need to improve the online database and to archive commodity prices received every day in an automatic data base. Mongol Content believes the user market could sustain a price increase per call access prices. The RBN editor in chief supports this view and Pact will undertake research into the viability of a price increase.

Monitoring conducted in both Do you use your cell phone for purposes other than Bayankhongor and Gobi-Altai regarding communication? That is, do you use your mobile the use of 509 services revealed a lack of phone to access information? knowledge regarding this product. 14% 10% Ninety-six percent of those interviewed yes who had cell phone reception in their no areas did not access commodity price sometimes 76% 33 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report information through the RBN 509 service.

The lack of regular RBN 509 users meant that the interviewer was unable to gather data regarding new commodity prices that users may wish to see included in the service. The vast potential user base that currently does not make use of the service was also highlighted, as was the need to inform the public about the product. Extensive advertising for RBN 509 has not been carried out for at least two years.

Pact Mongolia now analyses the RBN509 data that is collected by Mongol Content LLC. This has allowed insight into the frequency that commodities are requested. There are a number of commodities that have not been requested so far in 2007. An analysis of these commodities and their value to the database, as well as fresh and relevant new commodities will add value to an information campaign and assist in potentially streamlining and simplifying the database. Please see attached "RBN magazine and RBN 509 monitoring report" for more detailed information.

For a breakdown of currently collected commodity prices and the frequency of their requests, please refer to appendix entitled "RBN 509 product requests - Year to date CY 2007"

RBN Website

Targets: • 2500 hits per quarter • Aimag based business operators access website • Website update coincides with RBN going to print Indicators • No of entries counted to site • RBN magazine uploaded in conjunction with printing • Regularity of web site updates • Comments posted on the web site • Number of target beneficiaries reporting use of the web site

The RBN website has been updated on quarterly basis. The latest RBN magazine has been uploaded in Adobe PDF format to the archiving section. The website is being redesigned made more user friendly as internet use in Mongolia continues to increase

Pact has introduced a new system of counting hits to track the exact number of web viewers and their locations. The new system allows to Pact to determine, amongst other things the user's location (city, region, and country), entry pages, exit pages, IP addresses, and the length of the visit. 1808 hits were received from Mongolia this quarter. 768 first time users were identified out of the total site users. Hits from 20 different countries were counted. These included 182 hits from the Republic of Korea, 33 hits from the USA and 2 hits from Malaysia. The most popular pages this quarter were the index page, catalogs (archiving) and the market watch information page.

34 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

PRODUCTION AND BROADCAST OF RBN TV PROGRAMMING AND 26-PART TV DRAMA SERIES

Targets: • 26 episodes of an edutainment TV drama produced and broadcast • 24 Rural Business News TV produced and broadcast • 25% of Gobi residents watch GOBI TV products • 30% of viewers increase interaction with vet services Indicators: - Number of target beneficiaries who report watching the programs regularly - Percentage of listeners who use the information when making future business decisions - Percentage of viewers who report increased vet interaction as a result of the program - Percentage of viewers who report improvement in business activities as a result of the programming - Percentage of listeners who use the information learned when making future business decisions - Number of target beneficiaries report improved understanding of veterinary procedures, necessity and value

Regular RBN TV programming continued to air at 7.00pm twice monthly on TV9 channel. The program is repeated the following day at 11.00am. The 20-minute RBN TV program delivers information to herders, farmers, business operators and vets. Content this quarter included best business practices and success stories of Gobi Initiative clients with emphasis placed on marketing, cooperative development, tourism and veterinary issues.

Each TV program consists of two segments, a fifteen minute segment focusing on business and another five minute segment focusing on Market watch information, analysis and trends. In this quarter Pact's video editor and a stringer traveled to soums in Dundgovi aimag to shoot footage for the TV programs. The Market Watch segment was then produced in-house and included price analysis by Mr. Bizya from the Agricultural University of Mongolia.

Pact completed production of the second series of the television show "Final Destination". The first series was extremely popular amongst viewers. Produced in collaboration with G-Entertainment, the second series examines rural business development, the life of

35 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report herders, vet issues and animal husbandry management tips. The series is set in a fictitious Gobi soum and portrays real life and real problems faced by soum residents across the region. The second series was also shot in Gobi-Ugtaal soum of Dundgovi aimag.

"Final destination-II" began to air on TV9 on the 19th of September and the last episode is set to be broadcast on December 16, 2007. The series airs during prime time every Wednesday and Sunday at evening 7.45pm.

Production of Video Training Materials

Targets: • 2 training videos produced and delivered • 50% of viewers actively use information contained in the videos Indicators: • Numbers of copies delivered to relevant sites • Percentage of target beneficiaries responding that they used the information viewed effectively in their business/daily life

36 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

Shooting for a ten-minute audio visual production on camel related topics took place during September. A veterinary training session in Umnugovi aimag was the source of content for the production. The footage is being edited and will be disseminated to all Gobi Initiative aimags within the first month of the Fourth quarter.

RBN 509 product requests - Year to date CY 2007 Sorted by most-requested commoditiy prices Total % of Commodity Jan Feb March April May June July August Sep Total product requests cashmere 10 7 180 385 218 101 74 99 61 1135 35.6 meat (bulk) 57 23 25 27 47 33 43 58 38 351 11.0 meat 67 26 27 31 47 35 5 1 43 282 8.8 light cashmere 1 0 40 80 33 12 12 12 9 199 6.2 sheep with casing 4 1 7 0 10 13 18 29 41 123 3.9 beef (bulk) 14 4 8 12 12 11 18 20 14 113 3.5 sheep skin 109120 7107211995 3.0 petrol 8 14 5 14 10 12 8 11 2 84 2.6 mutton (bulk) 14 3 3 3 15 9 7 17 9 80 2.5 brown Cashmere 007331810532782.4 goat skin 62206871719672.1 horse meat (bulk) 6302961177511.6 skins and hides - 1 1001366422431.3 American dollar 923440795431.3 currency exchange 203245597371.2 marmot skin 04301241011351.1 sheep wool 1111871330351.1 Chinese yuan 2012010185290.9 soft camel wool 00101011400260.8 camel meat (bulk) 243421153250.8 horse skin 311052044200.6 wool 020091620200.6 hay 100300168190.6 goat meat (bulk) 400001364180.6 cow skin 310122332170.5 meat (non-bulk) 000411512140.4 fodder and grains 030031023120.4 horse mane 001352010120.4 hard camel wool 000146100120.4 diesel 000223220110.3 fodder rice 150120002110.3 fodder 130200220100.3 beef (non-bulk) 00040030180.3 ai -95 30000001370.2 skins and hides - 2 20000101370.2 ai - 93 02010022070.2 a-76, a -80 20122000070.2 40% cashmere 00010104060.2 sheep casing 02100101160.2 oats 00010301160.2 Russian ruble 31001010060.2 horse tails 10011100150.2 by-products 01101001040.1 salt licks 00012000030.1 yak wool 00002000020.1 Euro 00020000020.1 mixed pellet feed 00020000020.1 goat meat (non-bulk) 00000010010.0 camel meat (non-bulk) 00000001010.0 yak skin 00001000010.0 mutton (non-bulk) 00001000010.0 big animal wool 00000000000.0 camel skin 00000000000.0 horse meat (non-bulk) 00000000000.0 goat casing 00000000000.0

Total 238 124 336 633 508 319 285 394 352 3189 100.0

ACTIVITY TWO: LOCAL CAPACITY FOR INFORMATION DISSEMINATION AND COMMUNICATIONS During the quarter there were no activities completed under this component. The majority of activities has been focused on capacity building of local government officials and this has also included work in building their communication skills.

37 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

COLLABORATION WITH GOVERNMENT OF MONGOLIA AND OTHER PROJECTS In Ulaanbaatar, Mercy Corps staff continue to meet on a periodic basis with other implementing agencies and with consultants engaged to design and/or evaluate donor-funded rural economic development programs.

Mercy Corps, the State Professional Inspection Agency (SPIA), National Centre for Standardization and Metrology and Professional Inspection Agencies of 11 Mercy Corps aimags are organizing a public campaign and action plan to raise awareness of rural businesses of the Governments Standards and Norms related to food safety and how to comply. The campaign has been organized as a direct result of the Business Conference organized by Mercy Corps on the 5th and 6th of June 2007, where the participants identified the lack of information regarding the Governments Standards and Norms as one of the obstacles to developing business. The preparation stage of this Awareness Campaign is over and it is now moving to the implementation stage. The organizers plan to use various print and video messages (posters, leaflets, brochures, video materials) to target local businesses.

Mercy Corps organized on August 18-19 a two day meeting to discuss " Participation in Local Development" in Saihan-Ovoo soum, Dundgovi aimag. The meeting was attended by the Chairmen of the soum Citizen's Hural, soum Governor, Deputy Governor, Head of Governor's Office, tax inspector, other government officials, local residents and Mercy Corps staff. The participants discussed the following topics: • How to implement soum Master Plan • Create new jobs • Develop crop and tourism businesses, raise interest in having a job, establish a labor market Also soum residents and businesses openly discussed common problems and obstacles facing them with the soum authorities.

SDC The program has collaborated closely with the Swiss Agency for Development and Cooperation over the quarter. Mercy Corps Mongolia has signed an agreement with SDC to implement the 'Baruun Bus Regional Economic Development (BB RED) Project' in Uvs aimag. The project opening ceremony was held on 15 August, 2007 in Ulaangom attended by Mr.Markus Dubach, SDC country director, Mr. Sean Granville-Ross, MCM Country Director and Mr.Togoo, Governor of Uvs aimag.

The Baruun Bus Regional Economic Development Project will design and implement a series of pilot activities to tackle the challenges of promoting economic development in western Mongolia for the period of August 2007 to December 2008 as an initial phase. The project is funded by SDC and will be implemented by Mercy Corps Mongolia. The project will be implemented from an office in Uvs aimag and will capitalize on the experience and best practices of the three organizations SDC, Mercy Corps Mongolia and Mongolian V.E.T. Net. The project is now fully operational with 4 staff in Uvs aimag and one Program officer in UB from September, 2007.

A “Field Day”, Demonstration training was organized by the SDC (Swiss Agency for Development and Cooperation) "Revitalization of Mongolian Potato Sector" Program on 30th June, 2007. The goal of the training was to introduce new types of potatoes to GI clients and train them to grow these types. A total of 12 herder clients from the Gobi Initiative target aimags participated in the training. The field day was held 22 km from Ulaanbaatar and the participants were introduced to new varieties of potatoes including Impala, Vitara, Sante, Snegir’, Nevskii, Favorita, Yukon Gold, Gala, Solist, Karatop, Molli, Borwina.

Collaboration with Judicial Reform Project (JRP) JRP collaborated with MC to establish legal clinics during the aimag market fairs in September. At each market fair a team of two legal advisers participated and had an information stand. The legal clinics provided advice and information to all interested individuals, businesses and herder clients. The main advice provided was related to commercial contract law and family law issues.

"Snow Leopard Conservation Fund" NGO Mercy Corps has been cooperating with "Snow Leopard Conservation Fund" NGO since January of 2007 to train herders in 4 Gobi aimags including Umnugovi, Uvurhangai, Bayanhongor and Govi-Altai aimags and link them to new markets. The sub grant was signed with the NGO in July for an amount of $16,554. In the third quarter 8 advanced trainings on wool processing technology have been held in all 4 aimags. A total of 8 cooperatives with 86 participants attended these trainings. The participants purchased wool processing 38 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report equipment from "Snow Leopard Conservation Fund" NGO with a value of MNT 5.5 million ($5,000). The NGO has ordered finished goods worth MNT 2.2 million ($1,888) from the cooperatives that have participated in the training. The goods once finished will be sold in the US through the "Snow Leopard Conservation Fund" NGO outreach network in partnership with the "Snow Leopard Trust" based in Seattle, USA.

CONCLUSIONS AND RECOMMENDATIONS

Overall the program continues to be on track and the business plans are being implemented according to plan. Total sales for herder businesses during the first three quarters of CY2007 reached MNT 1.21 billion ($1.0 million) and for non-herder businesses MNT 1.34 billion ($1.14 million). This gives a CY2007 total sales to date of MNT 2.55 billion ($2.16 million), or 66.8% of the sales target for CY2007 for all GI clients (set at MNT 3.83 billion [$3.23 million]). Total sales have reached 94.7% of expected sales for the reporting period. The lower sales figures that planned is mainly being due to the severe drought observed in northern Dundgovi and across the whole of Gobi-Altai, due to which several businesses have faced problems with the implementation of their business plans. The majority of herder client business plans are seasonal in nature (vegetable/fodder/dairy/felt/meat) with production and sales occurring during the fall and winter months. Non-herder business plans also continue to be implemented according to plan with the businesses generating sales. All the program clients are making their loan repayments on time and there are no defaults to date this year. The program has also been tracking the number of new jobs created by those clients supported by the GI. During the third quarter the herder and non-herder businesses have created 115 new jobs.

The Mercy Corps loan guarantee mechanism continues to be a crucial component of the program and remains instrumental in linking rural businesses (particularly herder businesses) to the financial services sector. There are no delinquencies or defaults to date; this can be attributed to the successful production and sales achieved by the clients. One issue has been that of clients having "double loans" and the banks not willing to provide credit to these clients. This is an issue that the banks will have to continue to deal with as the sector becomes more competitive and more of the banks reach out into the rural areas of Mongolia. One potential solution is the

39 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report establishment of a credit information bureau. The USAID funded EPRC program and the IFC have provided some technical assistance to the banks to assist with the establishment of such a facility. However, the banks are yet to agree to cooperate on this and to contribute towards the costs of establishing the facility.

Also during the third quarter the Aimag offices have started the work of identifying clients for the following year. This has involved promoting the program and the activities to the rural businesses and herders via posters and radio announcements. Interested businesses and herders were asked to complete an application form and then the program selected potential clients based on a set of criteria. To-date, Gobi Initiative has received 236 applications from six representative offices, out of which 45 from Uvurhangai, 103 from Bayanhongor, 26 from Umnogobi, 14 from Dundgobi, 30 from Gobi-Altai and 18 from Gobi-Sumber. Gobi Initiative expects that the number of applications will continue to increase until the current deadline for submission, set at 01 October 2007. The target for Year Five of the program is a total of 260 herder businesses and 110 non-herder businesses.

The program has continued to work hard at the development of market linkages and promoting local production for local consumption. The biggest activity of the quarter has been the organization and holding of the Aimag Market Fairs in all six target aimags. This year the market fairs again grew in size from previous years and more importantly there was active involvement and participation in the organization and financing of the events by local government, other organizations and businesses in the aimags. The involvement of other organizations and local government is an important step forward towards ensuring that these events become a sustainable annual event long after the program ends. The six events in 2007 generated grand total sales of MNT 302.9 million ($254,160). Local products offered included dairy goods; bread, cookies and pastries; vegetables; wool and cashmere; hides and leather products; felt and felt products; wood/metal products; several types of handicrafts; wicker items; and construction material.

In order for rural economic development to be effective, a community needs to identify and consider its own economic strengths, weaknesses, opportunities and threats, and agree a shared strategy with all participating sectors (public, private and civil society). Socio-economic development master plans offer communities the opportunity to work together to improve the local economy and enhance competitiveness, thereby encouraging sustainable and inclusive growth. During the reporting period the development of the plans has been very successful and has involved local government employees, members of the soum citizen's representative Khural (local parliament), business owners and local residents. Gobi Initiative has facilitated the process from the initial meeting of all the stakeholders through to the development of the final master plan. Of the target 14 soum master plans to be produced the program is on track with all plans completed and 10 approved by the local Khural. The challenge in the fourth quarter and into Year Five will be to assist the soums to actually implement the plans, and for Gobi Initiative staff to monitor and evaluate the impact on the socio economic environment of the soum as a result of the plans being implemented.

The Gobi Forage component has been active in the third quarter with the production of maps and explanation keys, radio bulletins and training manuals. The maps and radio bulletins have been distributed through an established information and communication infrastructure and analysis delivery system to provide herders with information on current and forecasted forage conditions that will assist them to make timely and specific management decisions. The maps have been distributed on a monthly basis to 130 soums via the postal services. The distribution of the maps has been accompanied with a training program provided at the soum level. The participants in the training included the soum governor, land officer, environment officer, agriculture officer, bagh governors and interested herders. The training is designed to teach the participants how to interpret the maps and make decisions based on the information contained in the maps. Training was provided in 96 soums across the target aimags during the quarter. In the final quarter the Gobi Forage project will complete an evaluation that will be looking at the appropriateness of the information disseminated, whether the stakeholders (herders and local government officials) were able to interpret the information disseminated and whether the stakeholders actually used the information to make management decisions.

Business dissemination efforts have continued to be successful. RBN print demand continues to slowly increase in recognition of the improved quality in content and layout. The new TV drama series was completed and began airing during the quarter; informal feedback received by the Pact/RBN staff has been positive and the series is reaching the rural residents.

40 Mercy Corps Gobi Initiative Phase II Year Four 2007 - Third Quarter Report

At this point in time, Mercy Corps and Pact have no recommendations for any material changes to the GI Phase II program.

This concludes the Year Four Third Quarter Report.

Attachments to this Report are: Annex 1 - Gobi Initiative CY2007 Market Events Summary Annex 2 - RBN Magazine and RBN 509 Monitoring Report

41

2007 MARKET DAY SUMMARY

Location GA UH UG BH DG GS Total 21-23 Dates 7-8 September 7-9 September 7-9 September 14-15 September 14-15 September September Name of the Uvurhangai Bayanhongor Partnership Dundgobi Partnership - One village - One Altai Partnership - 2007 Gobi Festival - 2007 event Partnership - 2007 - 2007 2007 product • Aimag Governor's • Aimag Governor's • Aimag Governor's • Aimag Citizen's • Aimag Governor's • Aimag Governor's office office office Representative Hural office office • Aimag Food and • Aimag Food and • Aimag Chamber • Aimag Governor's Aimag Chamber of • Aimag Food and Agriculture Office Agriculture Office of Commerce and office Commerce and Agriculture Office • Aimag Professional • Aimag Chamber of Industry • Aimag Chamber of Industry • Mercy Corps/Gobi Inspection Agency Commerce and • Mercy Corps/Gobi Commerce and • Saintsagaan soum Initiative Co- • Aimag Standardization Industry Initiative Industry Governor's office

Organizers and Measurement • Mercy Corps/Gobi • Best products • Narantsatsralt Office Initiative Movement Committee foundation • Aimag Chamber of • Mercy Corps/Gobi • Mercy Corps/Gobi Commerce and Initiative Initiative Industry • Mercy Corps/Gobi Initiative • N. Bayanmunh, • S.Narantsatsralt, MP • L.Odonchimed, MP head of Policy • P.Raash, MP • Mark Minton, USA implementation Officials • USAID Senior Program Ambassador office, Ministry of attending the Manager Mr. Jon Food and events O'Rourke Agriculture • M. Bold, XAC bank President • World Vision • Zoos bank • XAC bank • XAC bank • World Vision • HAAN bank • Undarga Altai • XAC bank • XAAN bank • XAAN bank • KHAAN bank • Mongol post bank company • Bayan naiman LLC • Tavan Tolgoi • Sovin center • XAC bank • HAS bank • Mongol Shuudan Bank • Industry and Trans • Mobicom • Mongol Post bank • Credit bank • Uran Ohid company service cooperative • Skytel • Mongol daatgal • Mobicom Financial • Altai Hudulmur association Sulden Tenger LLC Telecommunication Skytel Supporters • • • company • Mon zah LLC • Hongoriin Sor coop office • G-mobile • Us Altai company • Uguumur Boot • Nachin Bakery • Mobicom • Communication • Saihan Bulgan shop • Skytel office company • World vision • G.Mobile • Mon Suli company • Donj goyol saloon • NIK petrovis Tevshiin hajuu us "Udmiin Urguu" Burhantiin Ovoo Elba elelctoronics, Darhan Nehii LLC - Darhan Nehii LLC - cooperative, dairy Most Sales LLC, ger white felt - cooperative, vegetable - electric appiances - 17,900,000 12,300,000 and animal fodder - 7,827,000 2,300,000 7,200,000 2,913,000 "ADUD" LLC - Full Mandahbayar, "Shimt Deej" company - Arvaiheer soum - "Udmiin Urguu" "Mandalgobi Khuns" Grand Prize decorated and carving herder - "caracul" seabuckthorn vegetable production LLC - ger white felt LLC - food products ger with 10 walls sheep Total Sales* 74,617,060 68,069,360 55,299,150 68,314,500 35,566,460 49,240,430 351,106,960 MNT Sales of GI 17,856,100 10,324,300 10,208,250 19,705,000 3,166,400 13,115,900 74,375,950 clients MNT Total 167 185 134 202 143 84 915 Exhibitors GI Client 13 19 25 38 15 7 117 Exhibitors Public 13,000 15,000 10,000 9,000 11,600 3,500 62,100 Attendance Total Expense 5,964,266 8,359,260 6,575,500 3,400,000 2,972,090 3,208,568 30,479,684 MNT Ratio of sales & 12.5 8.1 8.4 20.1 12.0 15.3 11.5 expense Value of MC contribution 1,341,751 2,041,390 795,900 870,000 724,090 347,000 6,120,131 to MD costs MNT Percentage of MCM contribution 18.8 17.5 12.1 25.6 24.4 10.8 20.1 to total cost of MD

* Total sales include:

• sales of products • bank loan, savings and leasing • sales of animals

2007 MARKET DAY SUMMARY

GA, Chandmani BH, Erdenetsogt BH, Bayanbulag BH, Baatsagaan BH, Gurvanbulag Location GA, Altai city BH, Galuut soum soum soum soum soum soum Dates 4 July 8 August August 1, 2007 August 4, 2007 August 9, 2007 August 11, 2007 August 12, 2007 Trade fair of One soum one brand Name of the Industrial Service One household one One soum one brand One soum one brand One soum one brand One soum one brand One soum one brand event Providers product • Mongolian Red • Industrial Cross Cooperative • Aimag Red Cross • Soum Governor's • Soum Governor's • Soum Governor's • Soum Governor's • Soum Governor's Association • Aimag Food and Co-Organizers office office office office office • Mercy Corps Agiculture Office • Mercy Corps • Mercy Corps • Mercy Corps • Mercy Corps • Mercy Corps • Chandmana soum Governor's office • Mercy Corps • P.Odonchimed, MP and president of Officials Mongolian Red attending the Cross events • N.Batsuuri, State secretary of MFA • Aimag Governor's Office • GA, ZA, and BH • Xac bank aimag Red Cross Best Product Best Product Best Product Best Product Best Product Financial • Mongolian Post • Swiss Development Movement Movement Movement Movement Movement Supporters Bank Agency Committee Committee Committee Committee Committee • Airgiin Had LLC • Shadar Tuslah LLC Mongolian National Mongolian National Most sales Dairy Dairy Dairy Dairy Bread and Fine Pastry clothes Clothing Ts. Narmandah, Ya. Enhee, Buyant Goviin Sor Altai Uiliin Shim Grand prize cooperative, GA cooperative, Hovd aimag, sleeping bag Aimag made of camel wool Total Sales 265,000 2,826,800 175,000 90,000 314,000 265,000 120,000 Sales of MC 80,000 1,192,300 55,500 0 28,000 61,100 80,500 clients MNT Total exhibitors 16 25 17 8 21 11 9 MC Client 2 9 4 0 2 4 4 Exhibitors Attendance 300 700 260 144 300 250 200 Total expenses 1,416,500 1,417,500 100,000 85,000 130,000 100,000 90,000 Ratio of sales & 0 2 costs Value of MC contribution to 153,500 667,900 0 0 0 0 0 MD costs Percentage of MCM 11 47 2 1 2 3 1 contribution to total cost of MD

Location BH, Shinejinst soum BH, Jinst soum DG, Mandalgobi soum Dates August 14, 2007 August 15, 2007 29 Sep, 2007 Name of the One soum one One soum one brand Saturday market-2007 event brand • Soum • Soum Governor's • Saikhan-Ovoo soum Governor's Co-Organizers office Governor's office office • Mercy Corps • Mercy Corps • Mercy Corps Government officials attending the events Saihan-Ovoo soum • Best Product • Best Product Financial Governors office- Movement Movement Supporters 78.600 Committee Committee Mercy Corps- 117.400 Airag Most Sales Vegetable/ potatoes Carpentry

Grand Prize Total Sales 250,000 150,000 1,700,000 GI clients total 0 0 1,700,000 sales Total exhibitors 19 12 7 GI exhibitors 0 0 7 Attendance 320 160 200 Total expense 100,000 100,000 196,000 Value of MC contribution to 117,400 MD costs Ratio of sales & 0 0 47 costs Percentage of MCM 3 2 2 contribution to total cost of MD