This action might not be possible to undo. Are you sure you want to continue?
The organization and measurement of the international drug trade By Peter Reuter, Professor, University of Maryland November 21-22, 1994 I. An Analytic Framework The principal costs of the international drug industry (1) are associated with distribution rather than production; Table 1 provides fairly standard figures on the cost of cocaine at different points in the distribution system and generates three observations, which are also true for heroin: Table 1 Prices of cocaine through the distribution system: 1992
Leaf (Peru) Export (Colombia) Import (Miami) Wholesale-Kilo (Chicago) Wholesale-Oz. (Chicago) Retail (Chicago) $ 650 $1,050 $23,000 $33,000 $52,000 $188,00 0
1. The cost of production, as opposed to distribution, is a trivial share of the final price. That statement holds true even if one includes the cost of refining as well as leaf production. 2. The vast majority of costs are accounted for by domestic distribution in the United States. 3. Most of the domestic distribution revenues go to the lowest level of the distribution system. If the retailer and lowest level wholesaler each raise
000 to the kilogram price. have also been more willing to act aggressively against growers. (3) There have been a few multihundred kilogram shipments of heroin but they are very rare compared to those for cocaine. are not major producers. body-packing.000 for flying a plane with 250 kilograms is generating costs of only $ 2. Risks and the costs of bearing them provide a reasonable explanation for these observations. Afghanistan and Laos (for opium/heroin) to act aggressively against growers or early stage refiners. A great deal of heroin travels in small bundles carried on invidividual couriers. A pilot who demands $ 500. the mark-up between export and import prices for heroin is much larger. despite the corruption of their drug control efforts. It is also useful to consider why neighboring countries. dedicated vessels cannot be used. A body-packer can apparently carry about 3/4 of a kilogram.000 for incurring a 1 in 10 risk in prison (perhaps acceptable for couriers whose legitimate wages are only about $ .their purchase price by 75 per cent. Nonetheless. Because most of the low cost producers are very distant from the United States. The modest share of costs associated with cocaine smuggling is easily explained. Both Colombia and Thailand. Though large sums may be paid to pilots for flying small planes carrying cocaine or for Honduran colonels for ignoring their landings. adds only $ 2. Heroin smuggling is not so efficient. thus. they may not be able to compete in the leaf or opium growing sector given that the illegality of the product has inhibited the development of more technologically advanced growing methods. Coca and opium are grown in countries characteracterized by labor and land that have low prices relative to those in Europe and North America. seizures suggest that shipments of 250-500 kilograms are quite common. involved in trafficking. A payment of $ 5. as they are in the cocaine trade. Both Colombia and Thailand have become relatively rich.000. Even if the plane has to be abandoned after one flight. (4) correspondingly. they will account for 60 per cent of the final price. The comparative advantage of these countries is reinforced by the reluctance of governments in Bolivia and Peru (for coca) and Burma. these costs are defrayed over a large quantity. (2) The drug travels in large bundles at that stage. where the body-packers are low wage earners. Low opportunity cost for factors of production plus low enforcement risks produce very modest prices for the refined product and also ensures that production does not move upstream geographically. produces per kilogram smuggling costs of less than $ 10. Colombia indeed allows spraying of coca fields.000 per kilogram. less than 2 per cent of the retail price. raising the opportunity cost of land and labor.
produces a kilogram cost of just over $ 11. At $ 40 per gram. Smuggling costs depend on the ability to conceal drugs in a flow of legitimate commerce and traffic.000 (5) compared to a retail price of $ 500.000 per annum). recently these traffickers have even entered the cocaine business. it does have some implications for explaining the location and organization of the drug trade. Nigeria is a nation that seems to have little potential role in the international drug trade.000 in travel expenses. a new source. the high costs associated with the final distribution activities point to where the high risks are. farm gate prices for opium in Mexico are typically $ 2. A 1990 study estimated that the annual risk of imprisonment for a low level drug dealer in Washington. The explanation is to be found in a complex of factors. compared to a few hundred dollars in Burma. Finally. low level dealers then faced a 1 in 70 annual chance of beign killed and a 1 in 14 risk of serious injury.000 to $ 5. hence the low smuggling costs simply equalize total costs.000 per kilo. the land border allows for much cheaper importation. If a 1/4 gram (pure) cocaine sale exposes a seller to a 1 in 3. which is still more remote from their home country. the expected time served was 18 months. Nonetheless. Implications for International Drug Policy Simple and sketchy though this account is. along with $ 3. Colombian source heroin.up of $ 10 is not unreasonable. have been misruled by corrupt governments over a long . Let us consider Nigeria's role. These risks are defrayed over small quantities of drugs. Nigerian traffickers have come to play a significant role in the shipping of heroin between Southeast Asia and the US. since each retailer sells only a few grams per week. Mexico of course represents a different situation with respect to smuggling costs. this explains the high share of the total funds going to dealers at the end of the distribution system. also represents high farm gate production with relatively low smuggling costs. The great fortunes may be made at the high ends of the trade but the sharp pyramiding of numbers. Mexico is a high cost producer. with a hundred gram dealers for every kilogram dealer.000 risk of going to prison and a 1 in 70. It is isolated from any of the principal producer or consumer countries and lacks a significant base of traditional domestic production or consumption. DC was about 2 in 9.000. Nigerians are highly entrepreneurial. (6) In addition. However. means that most of the money goes to moderate incomes for low level dealers. then a mark.2.000 probability of getting killed (consistent with the findings of the study).
have large overseas populations.(through established Thai and Chinese trafficking networks). II. imbedded in growing legitimate traffic. consumption and export. an unexplained increase in yield per acre and a dramatic . the figure for 1989 was 1. very low domestic wages (by international standards) and moderately good commercial links to the rest of the world. In the 1991 'INCSR' the opium available for refining (primary into heroin) for 1988 was estimated to be 679 metric tons. have few alternative sources and little concern about their standing in international organizations. They are certain to be low cost producers. Some governments. The difference reflected a 25 per cent increase in cultivation. The low quality shows particularly in inconsistency over time and across sectors of the industry. compared to current low cost producers. such as the documents of the United Nations Drug Control Program. the policy irrelevance shows in the lack of policy responsiveness to changes in the estimates. such as Uzbekistan. Thus it is relatively easy to buy protection for transactions in Nigerian airports (corruption and a weak governmental tradition).600 metric tons.time. But they are advantaged. One might more usefully ask whether the new republics of Central Asia are likely to become major players in the international heroin business. the current system produces numbers that have unnecessarily low credibility and are detached from the policy process they are supposed to inform. the commercial connections with Western Europe are likely to be weak compared to Burma. (7) Those estimates. as well as apparently good ecological conditions for growing opium and a traditional experise. Consider for example estimates of Burmese opium production. notably Afghanistan and Burma? Though closer to Europe and perhaps with significant populations resident in Russia and perhaps even in Western Europe. certainly they are regards as more authoritative than any other reports. are desperate for foreign currency. they are unlikely to aggressively enforce prohibitions against growing opium poppies or to have the capability to do so even if they desired to. Measurement The US devotes considerable resources to estimation of drug production by nations. Thus I suggest that the Central Asia republics will only become major players in the European opium markets if there are disruptions (including rapid economic development) in the current major supplier countries. to establish connections in both the source and consumption nations (large overseas populations) and to use. They certainly have low cost land and labor. However. And some notion of the scale and rate of change of the drug trade is potentially important for decision makers. published each year in the 'International Narcotics Control Strategy Report' ('INCSR'). are essentially without competition.
leading some analysts. it is often claimed that ''the general trends portrayed can be considered reliable.'' (13) The fundamental unsoundness of the whole series of estimates was demonstrated vividly at the end of the decade. (8) These are figures that do not bear close scrutiny.000 tons in 1989. There are. The US estimate of Mexican marijuana production was dramatically increased in the 1990 'INCSR.000 in 1989 led to a more than doubling of the estimate in Burmese domestic heroin consumption from 2.700 in 1985. provided by NNICC and the 'International Narcotics Control Strategy Report. either individually or collectively. no survey data on marijuana cultivation in Mexico. In 1987 INM showed a slight decrease (about 5 per cent) while the NNICC showed an increase of about one third.'' (11) Yet. INM officials explained the discrepancy in the mid-1980s as follows: ''The Department of State considers its country estimates more reliable because the data were derived principally from aerial surveys. (10) The preface to the 1988 annual report of the National Narcotics Intelligence Consumers Committee (NNICC.`from a total of 5. Yet this did not lead to any change in the estimate of the amount available for refining in 1988. A 25 % increase in the estimated number of Burmese heroin users from 12. the 'INCSR' estimates for the same years were 2.000 to 34. the State Department relied on random reports from Mexico which were higher than the NNICC figure.125 the year before. reflecting a downward revision in the number of Burmese opium users from 400.000 in 1988 to 15. Note that they differ substantially both in absolute value and in the trend.800 in 1986 and 2. These estimates have relied on often inconsistent and inadequately described methodologies.000.5 tons. including one at INM.'' (12) This was belied by discrepancies in the trends for the two official series for these estimates. the NNICC estimate of net production (after eradication) rose in 1986 to 5. which is an extrapolation of seizure data. heroin production was reported to thus increase from 68 tons to 128 tons.reduction in the amount of opium exported. however. as the result of changes . Mexican Marijuana (9) The problems are illustrated even more graphically by the published estimates for Mexican marijuana production in the late 1980s. Then in the 1992 'INCSR' the figure for domestic consumption in 1988 was suddenly reduced from 400 tons to 150 tons.0 tons to 4. an interagency group chaired by DEA) warns that ''there is little reliable data upon which to base estimates of the quantities of drugs involved. to conclude that actual production is ''unknowwable'' and that the agency's estimates are at best rather unscientific guesswork. the NNICC figures are higher and rising while the 'INCSR' figures are lower and essentially flat.' For example.700 tons in 1988 to 47. notwithstanding the lack of first hand evidence of illicit activity that limits accurate production measures.460 metric tons from 4.
Kleiman came up with figures for 1985 of only about 5. This would leave 35. assume that all these figures are major underestimates and that the total for seizures. notwithstanding the association of marijuana in the US with Mexican immigrant groups in the 1930s. Seizures are usually estimated at a few hundred tons. The 1991 'INCSR' announced a further revision in estimation methodology. There are no reports of Mexican exports to European markets. However. I estimated that the average joint contained about 0. Nonetheless. that these figures were implausibly high and should never have been published.000 tons (17) and prevalence was still declining in the late 1980s. Middle Eastern and domestic production in Europe. domestic Mexican consumption. this (conveniently) gives a total of 1 kilogram of marijuana annually. Mexican consumption and European exports was 12. reflecting a dramatic downward revision in the estimation of acreage eradicated. Mexican domestic consumption is thought to be quite low. Giving him time off for colds and work related drug tests. other estimates of US consumption have been far lower. Colombia etc. And this does not take into account consumption of domestic US production or what is imported from Jamaica. Yet it was possible to determine. (14) No details of those changes were provided in the published document. Moreover.000 tons. (16) probably reducing the amount of marijuana used in each joint.4 grams of marijuana. average marijuana potency had risen substantially. (15) By the late 1980s. That implies that we need 35 million very heavy marijuana smokers to consume 35. the heavy user ages. a new . How many marijuana users would have to purchase the Mexican product to dispose of this? Using data from the annual high school senior survey in the early 1980s. let us assume that there was no such increase for Mexican origin marijuana and that Mexican marijuana is of lower potency. he consumes this amount 333 days a year.000 tons. so that each joint contains 1 gram. A very heavy user of marijuana consumes about 3 joints per day. However. Yet reasonable estimates of the total number of heavy users (at least one joint per day) are only about one tenth of the 35 million needed to dispose of the imports from Mexico. which is primarily a hashish rather than marijuana market anyway. probably because it is not well located to compete with North African. with no great technical skill.000 tons for consumption in the United States markets. that would be about half of all persons aged 12-35.in estimation techniques. The estimate of area harvested was increased. exports to Europe and exports to the United States. Consider the various ways that Mexican marijuana might have been disposed of: seizues. The State Department estimated the total in the late 1980s to be 100 tons.
(18) the discipline is simple enough that one may reasonably ask why it has not been done before. more relevant to consumption estimates.20 0 1990 19. Congress did not feel the need to take new measures against Mexico when suddenly the State Department produced figures suggesting that the US marijuana market was completely dominated by Mexico.70 0 1991 7.77 5 1993 6. requiring US consumers to account for far more than is consistent with current estimates of prevalence. The story also points to another aspect of detachment. it is easy to establish that they are far outside the plausible range. important for those interested in estimates of foreign production. . The series should at least have been made consistent. The new 1989 estimate of usable plant available for export after domestic consumption and Mexican seizures was 29. Only in 1991 did the official figure start to approach plausible levels. I suggest that these figures should never have survived a review process to the point of publication. it was still utterly implausible. Though an improvement over the previous figure. was put at only half the latter. nor did the administration make any noticeable change in policy. Colleagues of mine at RAND have recently developed elementary ''mass conservation'' models that impose consistency checks on estimates.700 tons. The 1994 'INCSR' lists the following series for usable plant yield: 1989 metri c tonne s 30. it is worth noting the current state of estimates. one reason they are of low quality is that they simply have no consequence for any senior decision makers.28 0 Only for the 1990 figure is any footnote explanation offered suggesting a change in methodology.distinction was introduced between ''usable plant yield`` and ''whole plant yield``. As the above analysis suggests. the former. Though I will not describe all the twists and turns since then. yet no one seriously maintains that 1993 Mexican cannabis production is 20 per cent of its 1989 level. Yet the estimation process is so detached from analysis of domestic indicators that these figures have been able to survive for many years. The increases and declines in the 'INCSR' estimates have no clear consequence for US policy.79 5 1992 7. The current drug production estimates are detached from the policy process.
Ca. Iran and Syria). What is needed by way of measurement? Clearly this is entirely a policy driven enterprise. Nor. P. Without a specification of policy needs. Murphy 'Money from Crime: The Economics of Drug Selling in Washington DC' Santa Monica. (3) Nigerian traffickers seem to specialize in such smuggling. So the central question. (6) Reuter. There is no excuse however for producing implausible figures or inconsistent series. without any scientific goals. other illicit drugs.. . and P. are sources of significant problems but figure much less prominently in international trafficking as far as the United States is concerned. RAND. the purpose is simply to provide a sense of the magnitudes involved. Burma. as is not the case for the collection of data on domestic use and abuse. heroin/opium and marijuana. It cannot simply claim an incapacity to meet the statutory requirement. (4) These large shipments may account for a similar share of total US consumption of heroin.The State Department is required by statute to produce these figures annually. the administration forgives US friends and condemns those with whom it is not on goods terms (e. i. primarily synthetics. At the moment only the certification process seems to be connected to these estimates and that is actually driven by politics rather than numbers. (5) The risk and payment figures here are moderately informed guesses.g. MacCoun. R. putting aside the detail of the statutory requirements imposed on the executive branch by the boundlessly ambitious Congress.. the estimates will continue to flounder. 1990. (2) This analysis draws heavily on Reuter ''Can the borders be sealed?'' 'The Public Interest' 1988. Notes (1) This paper confines itself to cocaine. Mark Kleinman has estimated that Nigerian couriers body packing heroin into New York account for over 500 kilograms per annum. which is only about 10 per cent of cocaine consumption. is there any justification for large investments in improving the available data. However the shape of the shipment size distribution seems to be different. I suspect.e. is what decisions these figures inform.
Ca. personal communication from an INM official. 'Les Economies Non Officielles. Ronfeldt 'Quest for Integrity: The Mexican-US Drug Issue in the 1980s' Santa Monica. 1992. 1990. No doubt heroin is vastly cheaper in Burma but incomes are also dramatically lower. p. M. M. p. (8) The implied annual heroin consumption per addict is 300 grams. and X. RAND. University of Chicago Press. (12) Drug Enforcement Administration 'National Narcotics Intelligence Consumers Committee Report' 1984. (17) Kleinman. Editions Le Decouverte. S.' 1990.' Paris. (14) ''New analytic methodologies have enabled the US government to assess more accurately the extent of marijuana cultivation during the past several years'' ('INCSR. E. 'Drugs and Crime.. 'Marijuana: Costs of Abuse.. 1994. The report included no revision of previous years estimates. 53. (18) Separate models are available for cocaine.. (10) See Kleiman. 1989. P. been published. and D. Costs of Control' Boulder. Greffe (eds. RAND. (11) Drug Enforcement Administration 'National Narcotics Intelligence Consumers Committee Report' 1988. heroin and marijuana. Wilson (eds.(7) I infer this from the publications and contacts over the years with participants in the estimation process. 13). Westwood Press. Colo. 10 to 20 times the figure for the United States.' Chicago.). 1983.. Ca. to my knowledge. Costs of Control' Boulder. (9) This section draws extensively on Reuter. DC September 1988. 1989. ''Supply reduction and drug law enforcement'' in Tonry.). ''La signification economiques des marches illegaux aus Etats-Unis: le cas de marijuana'' om Archmabualt. M. Childress. (15) Reuter. 'Marijuana: Costs of Abuse. (13) General Accounting Office 'Control: Drug Interdiction and Related Activities along the Southwestern US Border' Fact Sheet GAO/GGD-88124FS Washington. Westwood Press. (16) Moore. Resetar. 1989. M. P. and B. Colo. M. and J. No cost figures have ever. 'A System . Dombey-Moore 'A System Description of the Cocaine Trade' Santa Monica.
M. Childress. 1994. .Description of the Heroin Trade' Santa Monica. 1994. 'A System Description of the Marijuana Trade' Santa Monica. Ca. Ca.