Opium and Price Elasticity

by Joshua Foust on 2/10/2010 · 9 comments

Perhaps because of the appalling rhetoric of counternarcotics in this country it can be difficult to bring the discussion of drugs into a more empirical discussion. In Afghanistan in particular, we have the pervasive meme that opium=Taliban, with entire books written about the topic, despite copious data to the contrary. So even though opium provides at best 25-30% of the Taliban’s overall income (which is another way of saying they tax all agriculture but opium generates the most money), our leaders still labor under the belief that destroying opium will destroy the Taliban.

When we factor in the outsized role opium plays in driving the rural economy, the discussion of opium only in terms of how it relates to the insurgency makes even less sense. That is because, despite some intimidation in some areas, most farmers grow opium as a last resort (pdf). It is literally the only way they can make money, establish credit, and sell their products. As a result, aggressive, rapid counternarcotics policies actually have devastating effects on local communities.

For decades, Nangarhar has been one of the dominant sources of opium poppy. But over the past two years, as a result of governor Gul Agha Shirzai’s suppression efforts—including bans on cultivation, forced eradication, imprisonment of violators and claims that NATO would bomb the houses of those who cultivate poppy or keep opium—cultivation declined to very low numbers. This has been hailed as a major success to be emulated throughout Afghanistan.

In fact, the economic and security consequences were highly undesirable. The ban greatly impoverished many, causing household incomes to fall 90% for many and driving many into debt. As legal economic alternatives failed to materialize, many coped by resorting to crime, such as kidnapping and robberies. Others sought employment in the poppy fields of Helmand, yet others migrated to Pakistan where they frequently ended up recruited by the Taliban. The population became deeply alienated from the government, resorting to strikes and attacks on government forces. Districts that were economically hit especially severely, such as Khogiani, Achin and Shinwar, have become no-go zones for the Afghan government and NGOs. Although those tribal areas have historically been opposed to the Taliban, the Taliban mobilization there has taken off to an unprecedented degree. The populations began allowing the Taliban to cross over from Pakistan, and U.S. military personnel operating in that region indicate that intelligence provision to Afghan forces and NATO has almost dried up. Tribal elders who supported the ban became discredited, and the collapse of their legitimacy is providing an opportunity for the Taliban to insert itself into the decision-making structures of those areas. And all such previous bans in the province, including in 2005, turned out to be unsustainable in the absence of legal economic alternatives. Thus, after the 2005 ban, for example, poppy cultivation inevitably swung back.

In this context, it makes sense that when farmers over-produce opium and other food crop prices spike, they switch from growing opium to growing other things, like wheat. From the available surveys out there, few farmers actually prefer or enjoy growing opium, they just don’t have viable alternatives (and USAID, in particular, has been criminally negligent in not providing these alternatives in any sustainable way). And the data have backed this up: the last two years have seen significant reductions in overall opium production in Afghanistan, as a crashing opium price and a spiking wheat price have combined to make it a less attractive crop to grow. (It should also be noted that when a community switched to growing food instead of poppy, the Taliban still taxed its exports, because there is nothing unique to opium that makes the Taliban single it out for revenue save its ubiquity in places like Helmand.)

In other words, opium behaves like any other agricultural commodity: responsive to demand and supply, with a fairly normal price elasticity and a fairly normal elasticity of demand. Yet, neither the UNODC nor most Western governments seem willing to discuss this in any great detail. Well, maybe now?

After a major drop over the past two years, Afghanistan’s opium cultivation is unlikely to rise or fall dramatically in 2010, a U.N. report said Wednesday…

The report, which surveyed 536 Afghan villages, found that 35 percent said they had planted opium poppy for the 2010 cultivation season and that higher sales prices compared to other crops was the predominant reason for doing so.

While the price of dry opium has fallen 6 percent compared to a year ago, the price of wheat has decreased by 43 percent, the report showed. The price of maize dropped by 38 percent over the past year. In contrast, the cost of fresh opium dipped 13 percent.

Why, that almost sounds like opium follows typical and universal price behaviors. It’s almost like we could maybe think about that before blindly flailing about trying to kill all the poppies. Oh well.

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This post was written by...

– author of 1848 posts on 17_PersonNotFound.

Joshua Foust is a Fellow at the American Security Project and the author of Afghanistan Journal: Selections from Registan.net. His research focuses primarily on Central and South Asia. Joshua is a correspondent for The Atlantic and a columnist for PBS Need to Know. Joshua appears regularly on the BBC World News, Aljazeera, and international public radio. Joshua's writing has appeared in the Columbia Journalism Review, Foreign Policy’s AfPak Channel, the New York Times, Reuters, and the Christian Science Monitor. Follow him on twitter: @joshuafoust

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JT February 11, 2010 at 6:38 am

Good post Josh, I wish I had had it as a reference when writing a paper on this subject this past fall. The confluence here of the (domestic) war on drugs and the (foreign) war on terror is really interesting and merits further examination.

Joshua Foust February 11, 2010 at 5:48 pm

Thanks. It’s not *that* surprising—after all, drug policy abroad is crafted by the same people who craft it in Latin America and at home. So even though moving beyond the “all drugs are bad at all times” argument actually presents a menu of choices that are more likely to reduce the overall cultivation, smuggling, criminal, and terrorist aspects to drugs, domestic considerations restrict policymakers’ ability to actually do that.

Dane February 11, 2010 at 10:30 am

Great post. I wonder what your thoughts on the “narco-jihad” concept being discussed, principally in a recent report from the National Bureau of Asian Research? You link to Felbab-Brown’s Brookings piece, which was expanded for the later report.

Joshua Foust February 11, 2010 at 5:42 pm

I’ve read bits and pieces of it. Given the bizarre theology that’s grown up around the justification for growing opium, I’m not sure I buy the “jihad” part of the “narco” label. Just because people on a jihad are also engaging in narcotics cultivation, that doesn’t automatically make the cultivation part of the jihad aside from the obvious funding issues.

It’s way more complex than I’m allowing for here, but we can just say that while I don’t entirely buy it, I DO find the idea an interesting one that needs deeper study.

Deb February 11, 2010 at 1:19 pm

I worked a year and a half in Afghanistan. Your words are so true!
However, you forgot about the Taliban’s road tax or passage tax. Enough people that have experience in Afghanistan that we do not have to be so myopic.

Joshua Foust February 11, 2010 at 5:49 pm

Yes. I’ve written other papers about how opium income is just one part of the Taliban’s near-total control of commerce and taxation in the country. They actually get more overall revenue from licit agriculture; opium just provides a really nice bang for the buck, so to speak.

MPM February 14, 2010 at 8:14 am

Well…sort of. The thing is that poppy doesn’t behave like other crops. Once produced into heroin it becomes a small volume, high value product. Perhaps conflict diamonds might be a better comparison. Also, it creates micro industries around it such as smuggling routes, security, secure storage. These as much as the revenue benefit the insurgency. Furthermore, its illicit nature means its prevelance fuels corruption and undermines governance making it harder to bring security to Afghanistan. It’s wrong to say that the “opium=taliban” theory prevails. In fact the current thinking is much more nuanced and looks at narcotics as one of a range of factors that undermine governance and security. Counter narcotics when done badly can be devastating for communities but eradication has thus far happened on such a tiny scale as to be almost insignificant. The strong arm tactics in Nangarhar are the exception and not recommended by anyone in the international community. Finally, the idea of poppy as a “last resort” crop needs to be taken with a pinch of salt. Poppy cultivation actually correlates to areas of relative agricultural wealth. There is coercion but poppy cultivators are more often than not making savvy market decisions rather than trying to feed their families.

Joel Hafvenstein February 15, 2010 at 9:19 pm

Hi MPM – I wish it were true that Gul Agha Sherzai’s CN tactics in Nangarhar were not recommended by the international community. In fact, they have been widely praised, and contributed significantly to his presidential buzz last year. Academics and policy analysts have pointed out the negative consequences, but the UNODC continues to praise Nangarhar’s “strong leadership”. Just a few days ago the UNODC warned that only timely eradication (similar to the Nangarhar model) will keep the number of “poppy free” provinces from dropping from 20 to 17 this year.

Many sizeable landowners make market decisions to grow poppy, but sharecroppers and small farmers (who bear the brunt of eradication campaigns) generally plant poppy not to maximize income but because it is the best or only way for them to access credit, land, and agricultural inputs. They really are concerned with feeding their families, first and foremost. (And the “relative agricultural wealth” of poppy-growing regions compared to non-cultivating regions is less impressive than UNODC has suggested — at best, they are *very slightly* less poor, not wealthy enough that they can stop worrying about their families’ next meal). See the work of Mansfield and Pain of AREU:

MPM February 16, 2010 at 4:18 am

Well…maybe. I’ll concede there’s certainly been some realpolitik blind eyes turned to what GAS did in Nangarhar but that his tactics have been recommended to other provinces is not true. Helmand’s “Food Zone” plan on the other hand is moulding itself into a transferable model and a discussion of various pros and cons of that scheme would be more relevant at the current moment.

The idea that the UNODC promotes eradication is a little off. During the release of the ORAS last week Lemahieu was at pains to point out that in the South West of the country, the fear of eradication was only cited by 4% of the population as the reason for not growing poppy. He was much more concerned to stress “positive incentives” being at the core of any future policy.

The idea of the “poor poppy” farmer is not a simple one and I’ll concede Dave Mansfield has a better grasp than me but I know he would also stress the complexities of it.

Ultimately though, the idea that a hard edged eradication led policy is at work in Afghanistan is a fallacy. FAO reckon 8m ha of land is cultivated in Afghanistan every year. That puts land under poppy cultivation at about 1.6%. Of that total only 5,480 ha of land was eradicated last year. That means only about 0.068% of farming land in Afghanistan was affected by eradication last year. This year without the Poppy Eradication Force we’d expect that figure to fall by more than a half.

I think ultimately, the view that Mansfield would endorse is that we should shy away from people who are either side of the poppy debate spectrum. There are those who want to spray every bit of land and there are those who want to do nothing but plant Pomegranite trees. The truth is that the solution is a long, grinding implementation of a comprehensive approach that utilises both hard and soft tools. I wouldn’t say that that is what’s happening but I do think that that’s a better description of what practitioners in country are trying to implement than they are often given credit for.

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