Report 1 Assessing the operation of the global drug market*

Peter Reuter

* This paper expands and updates Reuter (2003).

Abstract

Illicit drugs, predominantly cocaine and heroin, now generate a substantial international and domestic trade. For these
two drugs, production is concentrated in poor nations and the bulk of revenues, though not of consumption, is generated
by users in wealthy countries. Earnings have an odd shape; most of the money goes to a very large number of low level
retailers in wealthy countries while the fortunes are made by a small number of entrepreneurs, many of whom come from
the producing countries. Actual producers and refiners receive one or two percent of the total; almost all the rest is payment
for distribution labour. The industry is in general competitive, though some sectors in some countries have small numbers of
competing organizations.

It is not difficult to explain why cocaine heroin production occurs primarily in poor countries and only a little harder to
understand why the accounting profits are downstream. Almost everything else about the trade presents a challenge, both
descriptively and analytically. Why is the production of cocaine and heroin concentrated in such a small number of poor
countries? How are the different sectors organized, in terms of enterprise size and internal structure? What is the relationship
of drug trafficking and distribution to other transnational and organized criminal activities?

Cannabis and ATS provide a contrast in several dimensions. For cannabis a high percentage is produced in rich consuming
countries and a larger share goes to the growers. ATS is produced in both rich and poor countries and traded in both directions.
These questions serve to organize the paper, which reviews what is known about the operation of these various markets.
It offers a theoretical account for a number of the features.