20 Oct 2009

Why do Afghani farmers grow the "wrong" crop?

This [unedited] guest post is by a student in my EEP100 class (background post).
Please praise/critique/comment on its economic quality and importance to you.

Colin Kerrigan says:

Why do Afghan farmers continue to plant opium poppy when certain vegetables can actually give a higher return per acre?

While opium poppy is a rather valuable crop when compared to a staple such as wheat, farm gate prices for raw opium in Afghanistan are an order of magnitude lower than the street price of heroin in Western Europe and the United States.* In 2007 a farmer could expect to receive about 66,000 Rs (Pakistani Rupees, roughly equivalent to $800) per acre of opium poppy. While wheat only brings in half that amount, vegetables such as shallots, onions, and tomatoes can go for 100,000 Pakistani Rupees per acre. Even the humble potato goes for about as much per acre as raw opium. So why then do farmers grow opium, which they almost invariably recognize as being contrary to their sense of morality when they could receive as much money growing perfectly legal crops?

The short answer is that they can't. Such vegetable crops require a reliable source of water. While farmers with a source of river fed irrigation can and do grow high value vegetables, the poorest farmers on marginal, rain-fed land generally can't grow anything that will simultaneously pay the rent to their landlords (which can run as high as 80% of crops grown) and still have enough money to feed themselves save for the relatively hardy opium poppy. Additionally, opium's vastly lower transportation costs enable farmers to reliably sell their output. Drug traffickers will pick up the raw opium at a mountain farm and often provide credit to smooth out the farmer's income flow over the course of the year. Unlike opium, high value vegetables are bulky, perishable, and difficult to export since produce shipments are often blocked outright or damaged by customs officials looking for hidden opium or heroin. For legal livelihoods to be feasible for the worst off farmers, physical infrastructure improvement must occur along side institutional improvements to make both the growth and sale of legal crops possible. Until then, impoverished Afghan farmers will chose survival over a clean conscience.

Bottom Line: When forced to chose between a legal livelihood and an illegal one, most people will pick the less risky of the two. If the alternative to an illegal livelihood leads to even deeper poverty and starvation, people will pick the illegal one in spite of moral or legal apprehensions.
Opium Poppy and Informal Credit
Opium Poppy Cultivation in Nangarhar and Ghor
* [DZ's note: Since it takes 10kg of opium to make one kg of heroin, this statement implies ZERO markup on heroin going to the US, which is obviously false. For more, read my paper on Opium in Afghanistan and the US.]


Colin said...

I should have been clearer with that comment. To rephrase: farm gate prices for dry opium in Afghanistan are over an order of magnitude lower than the street prices in the United States for the heroin which is made from the dry opium sold by the farmer.

After looking at some UNODC reports, the actual markup is closer to 100x. In 2008 the farm gate price for dry opium was about $950 for 10 kg. As you said, it takes about 10 kg of dry opium to make 1 kg of heroin. The street price of heroin in the United States is usually over $100 a gram. This means the 10 kg of dry opium the farmer sells for $950 is worth over $100,000 after it is processed into heroin and is transported to the United States.

Sources for that data:


Eric said...

Nicely done and interesting. Thanks.

In the US a similar situation occurred. West of the Appalachians, corn was easy to grow in the early 1800's but very expensive to ship. So the farmers converted the corn to moonshine whiskey and shipped that, a low volume high value mind distorting crop, to the East coast. The original coffee break was actually a whiskey break. America was usually drunk until roads improved and corn could be shipped and until coffee became affordable, in about 1870. When the coffee break actually became a coffee break, Americans sobered up and were much more productive.

Canada Guy said...

Instabilty and war are the primary factors responsible for increased opium production in Afghanistan. Before the Soviet invasion, and during the brief rule of the Taliban, opium production was either very limited, or deliberated curtailed. Soon after the war is over, production is likely to plummet.


Steve Baba said...

If Taliban is fixing price of opium to fund war

Obvious way to defund Taliban would be to lower price of opium, with obvious problem of increased drug use - but I can't believe the raw material price in Afghanistan is more than a few percent of the street price in West given the very high transaction costs in illegal drug markets - 1% according to Colin.

It's too bad Brian Jack, the best defense economist I knew, was murdered on 9/11 on plane. Someone should do the economic analysis. Beats losing a war. Beats winning a war the hard way.

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