Authorities had considered trying to persuade people with harvest rights to let neighboring villages collect caterpillar fungus and share some of the wealth, but the idea met with strong opposition and was scrapped, Wang said.

Another task for the government is to advise people to use their fortunes wisely.

As their incomes have increased, some herders have developed expensive habits — buying brand name clothes and expensive cigarettes — and they have also been blamed for driving up housing prices in Lhasa, Tibet's capital.

Older herders remember the 1990s, when caterpillar fungus was not so valuable. They worry about a future price collapse and are starting to look elsewhere.

Sogru Bujog, 47, from Lashi, earned 150,000 yuan this year, roughly the same as in 2011. His oldest son helps with the herding and collection of caterpillar fungus, while his youngest plans to make a living by driving.

The older brother is entirely dependent on caterpillar fungus. He moved to Nagqu and only returns to the village with his wife during harvest seasons, hoping to bring back enough money to support his family and send his daughter to school for a year.

Uncertainties about the price and diminishing harvests of the fungus have affected the whole industry.

The competition for high-quality products in this unregulated industry is intense. When wealthy entrepreneurs purchase directly from villagers, they raise prices and smaller businesses feel the pinch.

This also results in villagers expecting the price to continue to rise, and many have taken to hoarding the fungus.

"They're misled. There must be a price cap someday," said Zhang Rui, 23, who runs a store at a market in Nagqu that opened in 2010 to trade the fungus. "Fresh harvests are valued much more than old ones, about 8,000 yuan more per kilogram."

His family has another store in their native Chengdu, capital of Sichuan province. After investing millions of yuan, they have clients in Guangdong, Shanghai and Hong Kong.

Seeing the market irregularities, Zhang said his family is preparing to become a retailer and expand its business to Southeast Asia, where traditional Chinese medicine is widely used.

Customers such as Beijing Tongrentang, a chain of pharmacies, order 5 kg or more. While Zhang sells the fungus for 200,000 yuan a kg, he said Tongrentang can sell it for 600,000 yuan a kg or even more.

"We choose products strictly according to our orders, with the specified size and weight," Zhang said.

Due to the purported medicinal value of the fungus and strong market demand for it, fake caterpillar fungus has also entered the market. Some dealers provide detection devices, as buyers may not check the fungus by breaking it in half.

Ma Wencheng, an ethnic Hui from Linxia, a major Muslim prefecture in Gansu, manages a store at the Nagqu market. His store bought a detector worth 100,000 yuan last year. The device can identify heavy metals, including mercury, which can be used to added the weight. The 20-year-old said many of his fellow retailers use it to make sure they are not cheated.

Zhang Jingzhen, a commerce official in Nagqu, said she has received three complaints about fake purchases. Her office had to send the fake samples to Beijing for testing because the prefecture does not have the needed equipment.

"To protect themselves, shoppers should purchase from registered stores at government-approved markets," she advised.

Contact the writers at daqiong@chinadaily.com.cn and liyao@chinadaily.com.cn