2 Which nations produce and why

A small number of nations account for the vast bulk of production of coca and opium. According to official estimates (e.g. U.S.
Department of State, 2008; UNODC, 2008), Myanmar and Afghanistan have accounted for over 80 percent of global production of
opium since the mid-1980s. Since the turn of the century, Afghanistan has increasingly dominated, so that in 2007 it was estimated
to account for 93% of the total (8,200 tons out of 8,870 tons). A total of six countries account for 98% of world production.

Bolivia, Colombia and Peru account for all of coca production. The distribution of production among them has changed over time.
In the 1980s, when the illegal market in the U.S. first emerged, it was produced primarily in Peru, Bolivia was second and Colombia
a distant third. Since the mid-1990s this has changed markedly, with Colombia responsible for about two thirds of total production.
Though other nations in the Andes, particularly Ecuador, are always rumoured to be about to enter the coca growing sector, none
has so far done so.

There is no technical reason for not producing cocaine or heroin in the United States or Western Europe. Hydroponic techniques
could be used for both coca and opium poppies. However the enforcement risks faced by producers in the U.S. or Western Europe
are substantial and the risk compensation costs sufficiently high, that even with transportation costs and associated interdiction
risks, local production of coca and opium poppies have never developed; indeed, these drugs are not even refined in the Western
world.

Francisco Thoumi (2003) contrasts the distribution of coca and opium production across nations with that for legitimate agricultural
products. Coffee can be grown in many countries; in fact, a large number of those countries do have coffee producing and exporting
industries. Many countries are capable of producing opium or coca; very few of them do. For example, opium has at various
times been grown in China, Lebanon, Macedonia and Turkey. However none of these are currently active producers for the illicit
market.

It is useful to contrast this configuration with that for cannabis. One hundred and thirty four countries report to UNODC
that cannabis is produced in their territory (Legget & Pieschmann, 2008). U.S. production accounts for a substantial (though
unknown) share of U.S. consumption, apparently much of it grown indoors. The Netherlands estimates domestic production
that approximately 18,000 “cannabis farms” produced between 130 and 300 tons of cannabis in the early part of this decade
(van der Heiden, 2007), far more than might be consumed by Dutch users and the coffee shop visitors (less than 80 tons).
Some of this is exported to other Western European nations. Bouchard (2008) estimates that production in the province of
Quebec in 2004 totalled 300 tons, of which less than one third was consumed in the province. Most of the rest was presumably
shipped across the land border with the United States or trafficked to Ontario.

Mexico and Morocco are the only nations identified as major exporters, Mexico exclusively to the United States and Morocco
to Europe. There are no estimates of what share of consumption in these markets are accounted for by imports from these
producers. However it is unlikely that the total international trade component of the cannabis trade is large.

Cannabis’ exceptional status in terms of disbursed production probably rests on four factors: the bulkiness per unit value2;
which raises smuggling costs substantially; the high yields per square meter, which allow a grower to produce substantial
revenues from a small area; and the existence of a boutique market of user/growers interested in developing better breeds of
the plant; and the ease of entry, since the seeds are widely available and there are probably few economies of scale beyond
quite a small number of plants.

ATS production is scattered around the world but not in many countries and not always in developing countries. It is useful
to consider the three component drugs (amphetamine, ecstasy and methamphetamine) separately.

Amphetamine is primarily consumed in Europe and that is the locus of production as well. Manufacturing requires neither
highly specialized skills nor sophisticated facilities. The United Kingdom was for some years the principal production centre but
other Western and Eastern European nations (notably Belgium, the Netherlands and Poland) have become more prominent
in recent years.

Methamphetamine is produced mostly in East Asia and North America. In Asia the UNODC (2008) reports substantial
methamphetamine production in China, Indonesia, Myanmar and the Philippines; these countries service both large domestic
markets and markets in other Asian countries such as Japan and Korea. However methamphetamine is also produced in
Australia, where a substantial domestic market has developed. Mexico produces for the U.S. market; however tough
enforcement at the border and perhaps effective precursor controls in Mexico itself have led to the development of a U.S.
based production capacity.3

For ecstasy on the other hand, rich nations (such as the Netherlands and the U.K.) are major exporters to many countries, including
developing countries such as Brazil (e.g., Barrionuevo, 2009). The production process requires considerable sophistication both
of technicians and equipment; this may explain the location of the producers in the developed world.

Risks and the costs of bearing them provide a plausible, though still untested, explanation for all these observations (Reuter
& Kleiman, 1986). Coca and opium are grown in countries characterized by labour and land that have low prices relative
to those in Europe and North America (Kennedy et al., 1993). The comparative advantage of these countries is reinforced
by the reluctance or inability of governments in Bolivia, Colombia and Peru (for coca) and Afghanistan and Myanmar (for
opium/heroin) to act aggressively against growers or early stage refiners. Low opportunity cost for factors of production plus
low enforcement risks produce very modest prices for the refined product and also ensure that production does not move
upstream geographically.

It is also useful to consider why neighbouring countries, involved in transhipment, have not been major producers. Consider
for example Thailand. In the early 1970s it was a major producer of opium. It also has had a substantial addict population
(predominantly heroin using). It continues to suffer from high levels of corruption, both in the powerful military and in the
civilian government. It would seem to be a strong candidate for a large opium production sector.

Yet Thailand now produces little and serves primarily as a consuming and transhipment country for Myanmar (Kramer, 2008).
The explanation can probably be found in economic factors. Over the past thirty years Thailand has had high rates of growth,
raising the opportunity cost of land and labour relative to impoverished Myanmar4. Thus, Thai farmers have not been able to
compete in the opium growing sector, particularly since the illegality of the product has inhibited the development of more
technologically advanced growing methods. Targeted alternative development programs, sponsored by the Thai king, may
also have contributed to the decline of production in Thailand. The Thai government, despite the corruption of its border
drug controls, has also been more willing to act aggressively against growers.

Until the mid-1990s Colombia was the other anomaly, a nation that would have been expected to dominate coca growing,
given that coca grew readily there and domestic production would reduce the risk of interdiction. Though the principal source
of refined exports to the United States, and an important source for Western Europe, it was a distant third in coca production
until the mid-1990s. The subsequent and rather sudden expansion of coca growing in Colombia, which has accompanied a
decline in Peruvian and, to a lesser extent, Bolivian production may be the result of specific political factors and developments
in the other two producers. The upturn in political violence in Colombia has led to a large internal migration from more settled
agricultural regions, where the paramilitary are most active, to unsettled areas in which there are few economic opportunities
other than coca growing and in which the guerrillas can provide effective protection (Thoumi, 2003). The decline in Peruvian
production may also be the consequence of an extended blight, the first to hit the coca crop in recent decades, and a
period of intense enforcement against air traffic of coca base between Peru and Colombia. In Bolivia a broad programme
of developmental support in the principal producing area (the Chapare) and perhaps actions of the governments prior to
the 2006 election of Evo Morales as president led to sharp decline in production.5 If peace and stability ever return to rural
Colombia, the coca trade may shift back to the poorer Bolivia; the recent loss of leadership and membership in the FARC,
along with the demilitarization of the paramilitary, may allow a test of that proposition.

One might more usefully ask whether the new republics of Central Asia are likely to become major players in the international
heroin business. They certainly have low cost land and labour, as well as apparently good ecological conditions for growing

opium and a traditional expertise; Uzbekistan had a licit opium production industry in the Soviet era. Some governments, such
as that of Tajikistan, are desperate for foreign currency, have few alternative sources and little concern about their standing in
international organizations; they are unlikely to aggressively enforce prohibitions against growing opium poppies or to have
the capability to do so even if they desired to. They are certain to be low cost producers, just as they are currently low cost
smugglers to the Russian market.

But are they advantaged, compared to current low cost producers, notably Afghanistan and Myanmar? Though closer to
Europe and with significant populations resident in Russia and perhaps even in Western Europe, the commercial connections
with Western Europe are likely to be weak compared to Myanmar, through established Thai and Chinese trafficking networks,
imbedded in growing legitimate traffic. The Central Asian 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.

Both in the Andes and in Afghanistan the growers are small producers and there is no suggestion that they have any collective
power in bargaining. Mansfield, in a series of studies over the last decade (e.g. Mansfield, 2007; 2008) has shown that
opium is just another crop that farmers choose to grow with the amount grown depending on access to water, availability of
infrastructure, prices of other agricultural commodities, availability of family labour etc. At that level, it is a typical agricultural
product, produced by many independent decision makers. Even at the level of traders, the market appears to be competitive
(Byrd & Jongelez, 2006). Only at the highest level of the domestic Afghanistan trade is there any indication of possible market
power. While there are no similarly detailed studies of the coca producing and cocaine refining sectors in Colombia, there is
little indication of any control. Observations of opium latex industry in Colombia by Sergio Uribe reported in Paoli, Greenfield
& Reuter (2009, Chapter 8) show that this has also been a decentralized industry of small farmers, with perhaps monopolistic
competition in the financing and processing sectors.

There is an emerging literature on cannabis production in wealthy countries. For example, Bouchard (in press) provides a
fine-grained description of marijuana growing in Quebec, an important supplier to the U.S. market according to his careful
estimates. Again what emerges is an industry of many small producers with minimal co-ordination, often employing teenagers
as workers (Bouchard, forthcoming). Less is available on production in poor countries that serve as suppliers to the West. In
Morocco, cannabis growing is a major agricultural activity in some regions, again involving small farmers who sell to numerous
middle-men (Gamella & Jimenez-Rodrigo, 2008). There are no published studies of cannabis production in Mexico.

ATS production is very lightly studied. Countries emerge and depart the market from time to time. Manufacturing facilities are
typically small and mobile. The relationship between production activity and other criminal activities vary across nations and
drugs. For example, in Australia methamphetamine production is associated with motorcycle gangs (Andreas, 2007), while in
the United States it has shifted from such gangs to criminal groups of Mexican origin. Production in Myanmar on the other
hand is controlled by a variety of different political groups (Kramer et al., 2008).

2 A kilogram of cocaine might have a border price of 10,000 Euros entering Europe; a kilogram of cannabis would be only a few hundred Euros.

3 Typical of the uncertainty about quantities related to the methamphetamine market, Brouwer et al, (2006) report that Mexico based groups
accounted for 70-90% of the U.S. methamphetamine market in the early part of this decade, despite the large number of labs detected inside
the United States.

4 The per capita GDP for Thailand is more than ten times that of Myanmar.

5 The governments cracked down on illegal production and then negotiated an agreement with the cocoleros in the Chapare that allowed each
household to produce coca in a small area. Ostensibly this production went to the small licit market for coca leaves; in fact most of it went into
the illegal market for cocaine.