Cashmere (Replay)

Summary

The Economics of Everyday Things: Cashmere (Replay)
Host: Zachary Crockett | Release Date: December 23, 2024

---

Introduction to Cashmere and Mongolia's Economy

In the "Cashmere (Replay)" episode of The Economics of Everyday Things, host Zachary Crockett delves into the intricate world of cashmere production in Mongolia and its profound impact on both the local economy and the global apparel industry. The episode opens with Crockett painting a vivid picture of Mongolia's vast Gobi Desert, highlighting the region's expansive arid landscapes and the nomadic herding lifestyle that dominates the country's socio-economic fabric.

Crockett introduces Miyagmarjav Serchew Miga, who manages the Mongolian Sustainable Cashmere platform for the United Nations. From her vantage point in Ulaanbaatar, Miga provides firsthand insights into the lives of Mongolian herders:

Miga (01:22): "Endless open space."

Miga (01:38): "You can see sunset. It's just like you watching sunset in the ocean. You can see the sand dunes and the camels. Birds."

These descriptions set the stage for understanding the symbiotic relationship between the herders and their environment.

Rise of Cashmere in Global Markets

Cashmere, derived from the soft undercoat of goats, has historically been a luxury commodity, accessible only through high-end brands like Loro Piana. However, the market dynamics have shifted dramatically over the past few decades. Direct-to-consumer brands such as Quince and Everlane have democratized cashmere, offering affordable options like $60 sweaters. This transformation has significantly benefited Mongolian herders by expanding their market reach and increasing demand for their goats.

Miga (02:45): "Kashmir is a primary income source for herders. They're also an important pillar of the country's economy."

Crockett underscores that approximately 30 to 40 million pounds of raw cashmere are harvested annually worldwide, with 90% originating from China and Mongolia. The surge in demand post-2000 has led to a dramatic increase in Mongolia's goat population—from 5 million in 1990 to 27 million today—making herding the nation's largest profession.

Cashmere Production Process

The episode provides a detailed walkthrough of the cashmere supply chain, emphasizing the meticulous process from goat herding to finished garments. Each winter, goats grow a second, softer coat beneath their coarse outer hair. This delicate wool, known as cashmere, is harvested every spring using metal combs and measured in grams for international trade. On average, a single goat yields about 250 grams of raw cashmere, equivalent to roughly $10 worth.

Carolyn Yim, a third-generation knitter from Plyknits, explains the transformation from raw fiber to luxurious garment:

Yim (03:26): "The softness is on the belly and the little areas under the arms and the chin."

Yim (03:43): "I think the reason it's so prized is because it's beyond a functional product. It is a good that is associated with luxury and an elevated sense of style."

The cashmere undergoes a series of processes, including carding and spinning, to become usable yarn. Yim describes this transformation:

Yim (12:04): "This then is taken into the spinning machine where the hair is twisted in two ways. Kind of like a DNA structure that becomes twisted and twisted until it becomes a really long yarn and that is finally then put onto the cone and becomes usable for knitting."

Despite advancements, the episode reveals that producing a single cashmere sweater typically requires the wool from five to six goats, highlighting the resource-intensive nature of the industry.

Challenges Faced: Environmental and Economic

The rapid expansion of cashmere production in Mongolia has not been without consequences. The surge in the goat population has led to severe environmental degradation. Goats consume significant amounts of vegetation daily, leading to overgrazing that has decimated around 70% of Mongolia's grasslands. This ecological strain is exacerbated by climate change, with rising temperatures and declining rainfall turning vast regions into deserts.

Crockett (14:38): "Mongolia has responded to this boom in demand by cranking up cashmere production. Since 1990, the country's goat population has exploded from 5 million to 27 million."

Economic pressures on herders are also mounting. Despite the increased demand for cashmere, inflation in Mongolia has skyrocketed over the past 30 years, making it challenging for herders to sustain their livelihoods. The median household income in Mongolia stands at $5,000, primarily derived from large herds of goats. However, rising costs in the capital city, Ulaanbaatar, strain herders who must support families with multiple children.

Miga (07:12): "Economic return is not sufficient enough to cover their financial demands. Herder families, for instance, have five children. Four of them gone to this school. And the herders have to pay all that expenses in the capital city, which is now very expensive."

Moreover, the logistical challenges posed by Mongolia's vast and rugged geography limit herders' ability to sell cashmere directly to processing mills. Middlemen from China often exploit this gap, purchasing raw cashmere at low prices and selling it to mills for double the rate, leaving Mongolian herders at an economic disadvantage.

Crockett (07:30): "Traders from China travel through the far reaches of Mongolia on motorbikes, collecting bags of cashmere from herders. These middlemen clean the cashmere and sell it to mills for around $100 per kilogram, more than twice what they paid for it."

Sustainability Efforts and Future Outlook

Addressing these multifaceted challenges requires concerted efforts toward sustainability. Miga emphasizes the importance of maintaining Mongolia's nomadic herding practices while mitigating environmental impacts:

Miga (15:38): "They know that the land is foundation for everything, their livelihood and their animals. They're not stupid. They are willing to pay that price money. And they realized the issues."

In Northern China, stricter regulations have been implemented to control herding practices, confining operations to farms and restricting the nomadic lifestyle. However, these measures have also led to significant disruptions:

Yim (16:06): "I do not have the hubris to claim I have 100% sustainability because it's completely impossible."

Environmental permits and sustainability standards imposed on factories producing cashmere garments present additional hurdles. High compliance costs have driven many small to medium-sized manufacturers out of business, further complicating the industry's landscape.

The episode concludes on a contemplative note, highlighting the delicate balance between meeting global demand and preserving Mongolia's environment and cultural heritage. Despite the challenges, individuals like Miga remain committed to fostering a sustainable future for the cashmere industry, recognizing its integral role in Mongolia's identity.

Crockett (17:06): "Together, increased demand, overgrazing and climate change mean that cashmere is getting worse."

Miga (17:51): "This nomadic way of herding practice has been in the country hundreds, hundreds of years. Financial demand is going up. The country has to control in terms of impact, environmental impact, social impact and also economic impact for that commodity. That's a lot of challenges."

Conclusion

The Economics of Everyday Things provides a comprehensive exploration of the cashmere industry's complexities, weaving together economic data, environmental concerns, and personal narratives. Through engaging discussions and expert insights, Zachary Crockett illuminates the hidden costs and potential solutions embedded in the story of a seemingly simple luxury good. This episode serves as a poignant reminder of the intricate web connecting everyday items to broader global systems.

---

Notable Quotes:

• Miyagmarjav Serchew Miga (01:22): "Endless open space."

• Carolyn Yim (03:43): "I think the reason it's so prized is because it's beyond a functional product. It is a good that is associated with luxury and an elevated sense of style."

• Miga (07:12): "Economic return is not sufficient enough to cover their financial demands."

• Yim (12:04): "This then is taken into the spinning machine where the hair is twisted in two ways."

• Miga (15:38): "They know that the land is foundation for everything, their livelihood and their animals."

---

Produced by Sarah Lilly with help from Lyric Bowditch and mixed by Jeremy Johnston.

Transcript

[American Express Representative]

You made it through all the starts and stops of your tech business. And when you're with Amex Business Platinum, you can count on a network of benefits to keep going, including access to over $1,000 in business and travel value annually. And thanks to five times Membership Rewards points on flights and prepaid hotels booked on amextravel.com, you and your plugged in engineers can get rewarded for working in the cloud. That's the powerful backing of American Express. Terms apply. Learn [e-mail] AmExBusiness.

[T-Mobile Representative]

After investing billions to light up our network, T Mobile is America's largest 5G network. Plus right now you can switch keep your phone and we'll pay it off up to $800. See how you can save on every plan vs Verizon and at&t@t mobile.com KeepAndSwitch up to four lines via virtual prepaid card. Allow 15 days qualifying unlock device credit service ported 90 plus days with device ineligible carrier and timely redemption required. Card has no cash access and expires in six months.

[Zachary Crockett]

Take a trip to the Gobi Desert region of southern Mongolia and you'll see vast expanses of arid land.

[Miyagmarjav Serchew Miga]

Endless. It's endless open space.

[Zachary Crockett]

That's Miyagmarjav Serchew Miga for short. She spoke to us from Mongolia's capital, Ulaanbaatar.

[Miyagmarjav Serchew Miga]

You can see sunset. It's just like you watching sunset in the ocean. You can see the sand dunes and the camels. Birds.

[Zachary Crockett]

You can see something else, too. Goats. Lots and lots of goats. The country is home to around 27 million of them. They outnumber people eight to one. These goats are critically important to the Mongolian economy and to the apparel industry. That's because once a year they produce a substantial share of the world's cashmere.

[Miyagmarjav Serchew Miga]

When you touch it, it's very soft. Some people say it's like a baby butt.

[Zachary Crockett]

It used to be that you could only find cashmere in high end clothes like a $2,000 Loro Piana turtleneck. Today it's everywhere. Direct to consumer companies like Quince and Everlane. Sell $60 cashmere sweaters by the truckload. That's good news for the folks in Mongolia who make a living raising goats.

[Miyagmarjav Serchew Miga]

Kashmir is a primary income source for herders. They're also an important pillar of the country's economy.

[Zachary Crockett]

But it's come at a cost. For the Freakonomics radio network, this is the economics of everyday things. I'm Zachary Crockett. Today, Kashmir, if you are a goat in Central Asia. Every winter, you grow a second coat of hair underneath your outer coat. It's soft, it's fluffy, and it's around six times finer than human hair. This wool is called cashmere.

[Carolyn Yim]

The softness is on the belly and the little areas under the arms and the chin.

[Zachary Crockett]

Carolyn Yim runs Plyknits, a boutique knitwear company based in New York and Hong Kong. Her family has been in the textile business for three generations.

[Carolyn Yim]

I think the reason it's so prized is because it's beyond a functional product. It is a good that is associated with luxury and an elevated sense of style.

[Zachary Crockett]

That association, she says, started back in the 1960s.

[Carolyn Yim]

How it came to be, well, I would say a lot of the. The association this with old money. Cashmere, like the cashmere, is worn at Ivy Leagues, and the cashmere sweaters with like, cigarette burns into it. And then in the 2000s, there was a lot more democratized cashmere. That started to happen, and that's when we really started to see that everyone wanted a cashmere sweater.

[Zachary Crockett]

These days, around 30 to 40 million pounds of raw cashmere are harvested each year all over the world, in Afghanistan, Tibet, Iran, Australia, New Zealand. But 90% of the world's supply comes from China and Mongolia. In Mongolia, where Miga lives, herding was once a collectivist enterprise. But when the country's communist system was replaced by a democracy in 1990, the goatherds were privatized and families flooded into the herding business. Today, tending to Kashmir goats is Mongolia's largest profession.

[Miyagmarjav Serchew Miga]

We have over 3 million population, and one third of the population are herders.

[Zachary Crockett]

Miga manages the Mongolian Sustainable Cashmere platform for the United Nations. In short, she spends a lot of time working with herders. While goats in neighboring China are raised on farms, Miga says Mongolian herders are nomadic. They migrate across vast distances, sometimes hundreds of miles, in search of food for their goats.

[Miyagmarjav Serchew Miga]

They are land connected people. They love their animal and livestock. They also love their nature. Early in the morning, they herd the animals and take them out to the pasture. They move a lot. They always go seeking for better pasture for their animals.

[Zachary Crockett]

The cashmere is harvested with metal combs every spring and weighed out in grams. That's the standard used for international trade. On average, a goat might produce 250 grams of raw cashmere each year. The price that it fetches is governed by its color and its quality. But in general, Miga says that one goat might yield around $10 worth of cashmere. That means that it takes a herd of 500 goats to earn Mongolia's median household income of $5,000. Most herders breed new goats to ensure they have a sustainable cashmere business.

[Miyagmarjav Serchew Miga]

Each season, springtime, they collect the cashmere. Then when it comes to slaughter season in November or early December, they slaughter the animal and sell the meat to the market.

[Zachary Crockett]

Mongolia has seen tremendous inflation over the past 30 years. An item that cost the equivalent of a dollar in 1993 costs around $95 today. So even with supplemental income, it's hard to make ends meet.

[Miyagmarjav Serchew Miga]

Economic return is not sufficient enough to cover their financial demands. Herder family, for instance, have five children. Four of them gone to this school. And the herders have to pay all that expenses in the capital city, which is now very expensive.

[Zachary Crockett]

In theory, herders could make more money if they sold their cashmere directly to processing mills. But their options are limited by Mongolia's geography.

[Miyagmarjav Serchew Miga]

It's a vast country. You can imagine how much effort needs to be to collect all the raw materials.

[Zachary Crockett]

Traders from China travel through the far reaches of Mongolia on motorbikes, collecting bags of cashmere from herders. These middlemen clean the cashmere and sell it to mills for around $100 per kilogram, more than twice what they paid for it. A portion of this raw cashmere stays in Mongolia, where it's knitted into goods by local companies. But 80% of it ends up in China. Miga wishes Mongolians could do more of that work themselves.

[Miyagmarjav Serchew Miga]

Mongolia don't fully benefit from the Kashmir industry because of this insufficient processing capacity in the country.

[Zachary Crockett]

So how does all this cashmere get turned into sweaters, scarves, mittens and even underwear? That's coming up.

[T-Mobile Representative]

After investing billions to light up our network, T Mobile is America's largest 5G network. Plus right now you can switch, keep your phone and we'll pay it off up to $800. See how you can save on every plan versus Verizon and AT&T. @t mobile.com keepandswitch up to four lines via virtual prepaid card will have 15 days qualifying unlock device credit service ported. 90 plus days with device ineligible carrier and timely redemption required. Card has no cash access and expires in six months.

[Zachary Crockett]

The Economics of Everyday Things is sponsored by Fundrise. Right now, high interest rates have crushed the real estate market. Prices are falling and properties are available at a discount. Which means fundrise believes now is the time to expand the Fundrise Flagship fund's billion dollar real estate portfolio. You can add the Fundrise Flagship fund to your portfolio in minutes by visiting fundrise.com economics that's F U N D R I S E Carefully consider the investment objectives, risks, charges and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the Fund's [e-mail] flagship. This is a paid advertisement. The Economics of Everyday Things is sponsored by Shopify. When you think about businesses growing their sales beyond forecasts like Momofuku or feastables by Mr. Beast or even a legacy business like Mattel, sure you think about a product with demand, a focused brand and influence driven marketing. But an often overlooked secret is actually the businesses behind the business making, selling and for shoppers, buying simple for millions of businesses. That business is Shopify, home of the number one checkout on the planet and the not so secret secret with shop pay that boosts conversions up to 50%, meaning way less carts going abandoned and way more sales. So if you're into growing your business, your commerce platform better be ready to sell wherever your customers are scrolling or strolling on the web, in your store, in their feed and everywhere in between. The secret's out. Businesses that want to grow grow with Shopify. Upgrade your business and get the same checkout Momofuku uses. Sign up for your $1 per month trial period at shopify.comeverydaythings all lowercase go to shopify.com everydaythings to upgrade your selling today. Shopify.com everydaythings Once cashmere is collected from herders, it makes its way all over the world. Some higher end brands like Loro Piana, export the material to Italy where it's knitted in local factories. But most Mongolian cashmere ends up in China where full scale milling operations turn it into yarn. It goes through a process called carding which draws the fibers out into strands.

[Carolyn Yim]

It is like a really, really long Santa's beard. It's really nice and fluffy.

[Zachary Crockett]

Carolyn Yim, the third generation knitter, has visited the factories in China many times.

[Carolyn Yim]

This then is taken into the spinning machine where the hair is twisted in two ways. Kind of like a DNA structure that becomes twisted and twisted until it becomes a really long yarn and that is finally then put onto the cone and becomes usable for knitting.

[Zachary Crockett]

By the end of this process, the cashmere is about 50% smaller. So it can take a lot of goats to make a single article of clothing.

[Carolyn Yim]

At the end of the production cycle, each Sweater takes about one pound of yarn. If you're just measuring grams, it's about five or six goats for one sweater.

[Zachary Crockett]

Yim's company PlyKnits, uses this yarn to produce all kinds of cashmere goods. Cardigans, leggings, shirts, Most of which cost a few hundred dollars apiece. But not all cashmere is created equal. The gold standard is pure white, with strands that are 14 microns wide and 36 millimeters long. And buyers like Yim have to develop a sixth sense for sniffing it out.

[Carolyn Yim]

I think over time, my sensitivity with my hands has really grown. It's sort of like being a perfumer with a nose. A really good cashmere sweater will feel peachy or creamy plush, Whereas a bad cashmere sweater is dry, cardboardy, papery, thin.

[Zachary Crockett]

Cashmere goods were once a luxury, produced in small batches and priced out of reach for most consumers. But in recent years, cashmere has entered an era of mass production. A new crop of Companies sells 100% cashmere sweaters for well below $100, supposedly by buying the material directly from herders and cutting out the middleman. But Yim says some brands keep prices down by using less material or by making their sweaters from lower quality fibers.

[Carolyn Yim]

You're taking not just the hair from the belly. You're taking areas that you wouldn't have before to make up for that demand and then using methodology afterwards, such as different ways of bleaching. I think this is happening a lot now, even with high end brands. The luxury cashmere sweater today is not the same as what it was 20 years ago.

[Zachary Crockett]

Mongolia has responded to this boom in demand by cranking up cashmere production. Since 1990, the country's goat population has exploded from 5 million to 27 million. That's had an impact on the landscape. Goats consume up to 11% of their body weight in grass, shrubs and weeds every day. They eat close to the roots, preventing plants from regrowing. Their sharp hooves damage topsoil. Scientists have found that overgrazing has contributed to the degradation of 70% of Mongolia's grasslands. Migue says Mongolian officials have attempted a number of things to combat these issues, including livestock taxes to fund revegetation.

[Miyagmarjav Serchew Miga]

They know that the land is foundation for everything, their livelihood and their animals. They're not stupid. They are willing to pay that price money. And they realized the issues.

[Zachary Crockett]

In northern China, measures have been more drastic. Most herding operations have been confined to.

[Carolyn Yim]

Farms in recent years. The Chinese government has a very particular approach to how the flocks can live. The goats are in corrals so that they are not roaming around free.

[Zachary Crockett]

And the region faces an even graver climate change. Most of Mongolia's landscape is made up of dry lands that are prone to becoming deserts. Temperatures are up, rainfall is down, and factories that produce cashmere garments are under pressure to adapt new sustainability standards. Environmental permits can cost hundreds of thousands of dollars. Yim says that in some major production hubs in China, these costs have put up to 50% of small to medium sized knitwear manufacturers out of business in the last five years. Even the most diligent operations are struggling to comply.

[Carolyn Yim]

I do not have the hubris to claim I have 100% sustainability because it's completely impossible.

[Zachary Crockett]

Together, increased demand, overgrazing and climate change mean that cashmere is getting worse.

[Carolyn Yim]

I'm unable to find the quality that we had 20 years ago. In Inner Mongolia, the cashmere fiber width has been steadily increasing, and that's not a good thing. You can't just increase yield of goat hair so quickly to meet up with demand.

[Zachary Crockett]

These are prickly issues for something as soft as a baby's butt. But Mongolians like Mika are invested in creating a sustainable future for the trade because cashmere is more than a material used to make really soft sweaters. It's a part of the country's identity.

[Miyagmarjav Serchew Miga]

This nomadic way of herding practice has been in the country hundreds, hundreds of years. Financial demand is going up. The country has to control in terms of impact, environmental impact, social impact and also economic impact for that commodity. That's a lot of challenges.

[Zachary Crockett]

For the economics of everyday things. I'm Zachary Crockett. This episode was produced by Sarah Lilly with help from Lyric Bowditch and mixed by Jeremy Johnston.

[Carolyn Yim]

In Mongolia, they wash it with just shampoo or with detergent and it's just everybody wears it.

[American Express Representative]

The Freakonomics Radio Network the hidden side.

[Zachary Crockett]

Of everything.

[American Express Representative]

Stitcher.

[T-Mobile Representative]

At Ameca Insurance we know it's more than just a car. It's the two door coupe that was there for your first drive.

[American Express Representative]

The hatchback.

[T-Mobile Representative]

That took you cross country and back, and the minute minivan that tackles the weekly carpool for the cars you couldn't live without. Trust Amica Auto Insurance Amica empathy is our best policy. Twas the nights before Christmas. Despite last minute stress, few were delivering except Walmart Express.

[American Express Representative]

Stockings were hung by the fireplace of care. Knowing in about an hour stuffers would.

[T-Mobile Representative]

Soon be onto the road. Walmart Express Delivery went chock full of wondrous things in the Saint N Timest.

[American Express Representative]

Let's go get Express Delivery in as fast as an hour. Even on Christmas Eve. Orders must be placed by 4pm local time on 1224, subject to availability. Fees and restrictions apply.

[T-Mobile Representative]

Express Delivery to y'all and to all a Good night. Welcome to your Walmart.

[American Express Representative]

At Capella University, learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the course room to the workplace. A different future is closer than you think with Capella University. Learn more at Capella. Eduardo.