When Preserving Cultural Heritage Requires Disruption

Musings from Yoxi Executive Director, Kaz Brecher

In our Field Notes series, we share perspectives and insights as we take a closer look at the work being done by Yoxi explorers on their inspiring journeys of discovery. It’s obvious why we are fascinated by Naadam Cashmere, which began in earnest when Matt Scanlan, the then-26-year-old co-founder and CEO loaded $2.5 million in Mongolian tögrögs into plastic bags, piled into the back of a Land Cruiser and headed into the desert in June 2015. Destination: Bayankhongor province, one of the most remote regions in the world, deep in the Outer Mongolian Gobi desert, where nomadic goatherds gather to sell some of the finest cashmere to be found. Matt and his colleagues ended up with 100 tons of cashmere and the raw materials to weave into a socially-conscious, sustainably-sourced, audacious affordable luxury clothing business.

Perfect Storm Meets Vicious Cycle

Chances are that you first encountered cashmere in the form of the forbidden, as in “no, you can’t borrow mom’s special cashmere sweater”…which probably only made the material more alluring. Cashmere has been produced in Mongolia, Nepal and Kashmir for thousands of years by nomadic herders who tend to their animals in the harshest conditions — punishing winds, temperatures of minus-40 degrees and incredible snowfalls — which, ironically, is precisely why the goats produce such high-quality undercoats. The fiber is typically collected during the moulting season in the Spring, but the best way to gather the finest, longest and thinnest down (and keep the goats happiest) is by hand-combing, a labor-intensive process. As a result, through much of the 19th century, cashmere products were the domain of European nobility, a rare luxury from a distant culture.

As globalization changes the shape of culture and commerce, and China’s middle-class swells, demand has ballooned. This has had several effects on the traditional trade. First, some herders and producers have encouraged cross-breeding to try to increase yield, but this mostly means a reduction in quality of output and the resulting products. And, since there are strict guidelines for what actually constitutes cashmere, most of the lower-priced items are marketed incorrectly. Mongolia has maintained more of the purest breeds, where nearly a third of the population is associated with herding. According to a 2017 report by the Mongolia International Capital Corp. (MICC), a regional investment bank, their exports of cashmere garments have nearly tripled from 2009 to 2016.

Thus, many herders have doubled or tripled the size of their flock, putting enormous environmental pressure on grasslands already suffering increasingly unpredictable climate changes. More goats means more grazing. But if goats are underfed, they produce wool of lower quality, which means herders need to increase yield — further increasing the size of the flock, leading to more desertification. The tensions inherent in this vicious cycle rarely make their way to the consciousness of consumers. Thankfully, several larger luxury brands are starting to work to address this dark side of demand with non-profit organizations to develop more sustainable models for cashmere production, if only to preserve their pipelines. But much more work is required at an ecosystem level to secure a supply chain that supports the tenuous lifestyle of traditional herders.

In addition to overgrazing, the Mongolian grasslands are being degraded by pollution resulting from increased mining.

Start Where You Are and Do What You Can

At Yoxi, we wrestle with the idea of change from within, as one of our explorers is doing in farming communities in her native India, versus change from without. Many in the world of international aid and impact investing have rightly referred to the “reductive seduction of solving other people’s problems” with great trepidation. But sometimes, it’s precisely an outsider who can see things differently and is best positioned to shake things up. And we are particularly heartened by the ways in which the Naadam team have demonstrated a commitment to listening to and partnering with those whose lives are directly impacted by the cashmere trade, pivoting as they together experiment to uncover and test the best levers for creating lasting change.

As we experiment with interactive mapping as a way to explore ecosystems, we noticed that the cashmere supply chain seems straightforward, but the forces which shape the relationships are unpredictable and asymmetric (like China’s swelling buying power).

The Naadam origin story has been well-covered elsewhere, from the backpacking adventure upon which Matt Scanlan and Diederik Rijsemus jauntily embarked and the unlikely but auspicious misunderstanding about a side trip into the Gobi desert, out of which grew transformative relationships with a family of Mongolian cashmere herders. But what drew us to Naadam initially was the unabashed spirit of adventure and curiosity that drove Matt and Deiderik to pursue the nagging feeling they had that this unique way of life needed to be protected. They could sense larger forces at play but believed they could do something, even if they didn’t know how.

During their accidental month living with a herder named Dash and his family, the Naadam founders learned that if you lose your flock, your only option is to move to the edges of Ulaanbaatar and try to find work in the mines (a booming industry which is exacerbating growing poverty and pollution nationwide). And worsening climate effects add a particularly cruel factor, with a phenomenon known as a dzud specific to the Mongolian region, causing severe summer droughts followed by even harsher winters.

A contrast in living conditions.

Nine million animals died in 2010 when one struck, and a dzud in 2016 killed an additional one million livestock, leading to catastrophic options for many herding families. So, it’s little surprise that as the glimmer of Naadam began, the focus was on raising funds from family and friends for veterinary programs to protect the wellbeing of the herd; this grew into a successful Kickstarter campaign, with a business model built on the idea of vaccination programs for the goats, which they hoped would lead to more robust flocks and some stability for the herding families (as well as a way to insure the start of the supply chain).

Since cashmere herders are vulnerable to a number of external variables, the Kickstarter campaign focused on protecting their income streams by reinvesting profits into the World Banks livestock insurance program.

Indeed, Naadam’s non-profit arm is flourishing. Among its many efforts, the company manages the Gobi Revival Fund, which inoculated more than 250,000 goats in the past two years. But it became clear that vaccination was only one piece of the puzzle. Driven by a desire to address root causes but able to adapt to complexity, Naadam has demonstrated from even its earliest efforts what is sometimes referred to as systems entrepreneurship. As they examined the many factors impacting the cashmere ecosystem, for example, it became clear that their mission had to expand to include grassland management and support for a more consistent food supply for healthy herds, in order to provide resilience and offset the extraordinary impact of erratic weather patterns.

It’s not often that a business prioritizes spending $25,000 on 20 tons of heavy-duty metal wire to build a fence the size of Manhattan and starting a program to protect the food source of 1000 herding families. But by protecting overgrazed areas and promoting plant re-growth, Naadam is investing in ensuring the long-term survival of cashmere and supporting a fragile way of life.

Good, Fast, Cheap 2.0

As with any good cause or start-up, how the story is told is almost more important than the core value proposition. And it’s now common knowledge that as digital nomads and Millennials become ever more discerning, they prefer to support products that do good. Patagonia consistently demonstrates that the more they amplify their stated values and mission, the more success they enjoy. But Edelman’s 2018 Trust Barometer reflects a rising polarization in how we engage with influencers, businesses, institutions, and even how we consume marketing messages. Many are deeply skeptical of the notion that disruption is always a good thing, myself included, as we experience the unintended consequences of technology and “innovation” on our society.

So, what are consumers to make of the claims that “not all cashmere is created equal” and that Naadam is “disrupting a 1000 year old industry” as it scales? I asked Matt, and he didn’t hesitate to explain why the cashmere tradition absolutely must be disrupted in order to be saved. At first glance, we might think that preserving ancient, indigenous ways exactly as they have always been practiced would be critical. But he rightly pointed out that just because it’s old doesn’t mean it’s good (an example of the blindingly obvious insights common to the best of human-centered design).

Essentially, at the yearly auction, the group of traders who act as middlemen traditionally engage in what could be best described as price fixing — agreeing beforehand on a price and then none will pay herders a penny more for their yield. Roughly, this meant that herders would earn about $20 per kilo, which was then re-sold at $50 by the traders to a broker, who would again re-sell to a mill for $70 after handing the exporting and shipping. Throughout the long history of cashmere herding, there have been people with money and power taking advantage of herders with little leverage to avoid being exploited.

The central belief at Naadam is that, while the nomadic communities rely on cashmere production as a way of life and a cultural identity which deserve preservation, we have a responsibility to re-balance the equation in the face of new threats resulting from globalization. So, they offer the nomadic herders 50% more than traditional traders and make everything themselves in the region (production happens within a 30 hour drive from the cashmere source). At this price, they get the pick of the highest-quality material. And, by managing processing, shipping and manufacturing, more layers of markup can be removed.

It is in this context that Naadam believes the key to true sustainability in cashmere is only possible by paying a living wage to the herders, delivering a superior product, and making the luxury of a high-quality product affordable to those who care about the impact of how they spend their dollars. This boosts profit for all parties and allows re-investment in the preservation of the larger ecosystem supporting the cashmere supply chain — including implementing clean energy-powered production facilities and avoiding ever using harsh chemicals or bleaches, which they have remarkably already done!

Matt (at left) and Diederik (above right) examining the cashmere yield.

Given all of the greenwashing and do-gooder-ism that’s flooded marketing messages in the past decade, it’s a worthy pursuit to tackle the well-founded instinct that buying things that are fast, cheap and good is impossible. Thus, the biggest challenge Naadam faces surprisingly isn’t the model of how to ethically source and produce their cashmere products while paying a livable wage but rather how to connect the message of their kind of holistic sustainability to the value of quality and affordability and why it matters. Where most early stage social entrepreneurs are fretting about managing fulfillment and logistics in order to create impact, Matt deeply believes that only by making this connection for consumers can we drive real change in fashion and in other industries.

Harnessing Hipster Values for Herders

As Naadam states on their website, “almost all cashmere sourced from Mongolia is organic, but not all cashmere is environmentally sustainable…Naadam has created the only cashmere yarn that is Cradle to Cradle certified, which evaluates and sets a high standard to protect the earth and basic human rights for how the product is made.” But consumers are easily confused (or glaze over) when trying to discern what any of this means.

Take one of my favorite examples from the early days of “free range” farming initiatives, when I met a rabbit farmer at Outstanding in the Field, who lamented the enormous hit their business was taking because they couldn’t use the term “free range” for their product. If you know anything about rabbits and how they breed, it should be obvious that the last thing you can do is let them have the unimpeded run of a pen. While her rabbits grazed grasses and clover as they enjoyed indoor / outdoor housing, they were not “free range” as the labeling industry had begun to define it, an infuriating pitfall.

With elegant outer packaging conveying the luxury and quality of their products, Naadam puts information on the labels inside that educates customers about the impact of how materials are sourced and why it’s important to cease using toxic dry cleaning practices.

Interestingly, while the recent Edelman Trust barometer tells us that skepticism is broadly pervasive, they note that at the same time, “voices of expertise are now regaining credibility. Journalists have risen 12 points, and CEOs recorded a seven-percentage point gain, since 2017. Technical experts, financial industry analysts, and successful entrepreneurs now register credibility levels of 50 percent or higher.” No doubt, transparency is a huge factor in where consumers place their trust, and we are seeing signs of fashion titans moving to experiment with things like blockchain technology to verify organic cotton.

A Small Group of Thoughtful, Committed Citizens

It’s important to be realistic about the impact that small-scale supply chain disruptions like this have on the overall industry — and consumers want to know if changing their purchase priorities will actually make a difference. The Dutch upstart Tony’s Chocolonely is perfect case study, providing a glimpse of what might be in store for Naadam’s future. Launched out of an investigative journalism stunt, Tony’s set out to see if it was possible to make high-quality chocolate widely-available without using the slave labor which has historically enabled low prices. Chief Chocolate Officer, Henk Jan Beltman admits, “the reason that we are a company is not that we want to sell chocolate and not that we want to make money….We want to make the world a nicer place.”

They are certified as Fair Trade chocolate by providing better prices to farmers and slave-free working conditions, and each bar is marketed with a promise to the consumer that no slave labor was used in the making of its chocolate. But they started with a premium product first and invited their customers to discover the story of how chocolate is made in delightful ways: a small mark on the outside of the bar, a beautiful graphic on the inside of the wrapper, and a bar which itself is unevenly divided by the coastline of the Côte d’Ivoire representing how profits from chocolate are unevenly distributed.

As a chocolate company, Tony’s leads by example and activates industry, politics and consumers to bring about change. They assert that, “alone we make slave free chocolate, together we make all chocolate 100% slave free.”

Tony’s hit $1 million Euros in revenue in the first year and jumped to $50 million in the following year. But rising profitability isn’t the only measure of success. “We only work with 7,000 farmers. We are a tiny company. But if we can do it then the big guys can do it as well,” Beltman says. “Then we solve the problem of slavery in the value chain of cocoa.” And this is why Yoxi is cheering Naadam’s success as they became profitable in just their second full year, with growth currently projected over 350%. They are demonstrating how true sustainability is the key to delivering the highest-quality cashmere products at a price that allows more consumers to participate in protecting a way of life threatened by the opacity of supply chains.

Think Globally, Act Locally, Even If It Seems Futile

Matt speaks candidly about how small the Naadam operation is in the scheme of a global market, but he doesn’t waiver in his belief that what they are doing is important and makes a real difference. Not only does their model begin to add pressure upwards on the rest of the industry as consumer consciousness increases, but also they are seeing real impact at the local level. And, as is often the case in projects which grow out of personal passion, relationships are at the heart of sustaining the effort and quality in the long run.

In the region where Naadam is operating, their intervention at auction is starting to change what the herders will accept. So, anyone who wants to compete for top quality cashmere has to rethink their own profit model, and traders and middlemen may soon face a choice of how to remain relevant. Of course, we are seeing various professions phased out as a result of automation, across industries and regions. And as the entire globalized and interconnected landscape shifts, we will continue to see people needing to re-contextualize their own role in these ecosystems.

Might it only be a matter of time for the middlemen anyhow — because if things progress as they are, everyone in the cashmere trade will be out of business when Mongolia becomes a desert? Who knows, perhaps down the line Naadam’s non-profit efforts might explore ways to engage those formerly exploiting the herders in more sustainable ways to preserve the best of the culture —by turning their attention to grassland management, preservation or eco-tourism, as we have seen in instances of poachers shifting to wildlife conservation in Namibia as a more viable income source.

Ultimately, Naadam’s longer-term vision hinges on trust, which is a difficult KPI to measure, both with consumers but also, and more importantly, with the herdering communities. Matt knows that, while they are already seeing hope and some early shifts at auction, change takes time. And herders are understandably reluctant to thin their herds too soon, until they are assured that the Naadam buyers will really come back year after year. When they know they can earn the same amount with fewer goats, they’ll be more likely to begin downsizing, which will give the grasslands more chance to rebound. This also will allow them to start saving, so that when another devastating dzud occurs, they can financially weather the storm rather than moving their family and uprooting their way of life.

Similarly, as Naadam is navigating rapid growth, building a team with deep trust is the primary focus. Perhaps because the company began with an adventure into the unknown, it’s clear that traveling companions and their ability to navigate, adapt and collaborate become the most valuable assets when forging a new path — a perspective often noted by Yoxi’s founder, Sharon Chang. Matt is clear that he doesn’t have to know everything (and he often reminds people that he knew nothing about fashion), instead he is focused on identifying partners and team members with specific expertise and listening with humility to those who bring other perspectives.

Naadam is driving new ideas into the realm of cashmere production and indeed disrupting patterns of “how it’s been done” for thousands of years. But we applaud their dedication to understanding the nuance of where to wield disruptive forces, appreciating that some things should remain exactly as they are — like the time spent building relationships over cups of tea (or milk vodka if there’s any on-hand).