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The Dynamics of the Farmgate Opium Trade and the Coping Strategies of Opium Traders

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STRATEGIC STUDY #2

Final Report October 1998

This Study seeks to further UNDCP?s understanding of the market structure of the farmgate trade in opium and identify the possible responses of traders to a reduction in the supply of opium.

2. Introduction

Currently, little is known about the structure of the farmgate trade in illicit drug crops. It is apparent from work in other drug crop producing areas that prices for coca and opium can be quite localised. However, it is unclear what influence traders have in determining the farmgate price of illicit crops and, consequently, the relative profitability of alternative sources of livelihood and the ultimate success of alternative development interventions.

The market power of traders to set opium and coca prices will largely depend on the degree of competition that exists in the illicit drugs trade in the local area at the different levels in the trading chain. Experience would certainly suggest that the illegal nature of the drug trade and associated violence and intimidation, limits the degree of competition at the wholesale level, resulting in a small number of large traders dominating the trade in bulk purchases of drug crops. However, at the level of the farmgate the degree of competition is less well known. Yet, it is at this point in the chain where household decision making over cropping patterns is informed.

Where the trade in illicit crops is highly localised and dominated by large traders who directly employ agents to purchase opium and coca at the farmgate, it is possible that short term reductions in the supply of drug crops will be felt immediately. This vertically integrated model allows traders to respond immediately to any short term reduction in drug crop cultivation with a concomitant increase in market prices, hampering efforts at promoting alternative livelihoods.

However, where the farmgate trade in drug crops is relatively free with numerous buyers and sellers operating independently, the market power of larger traders will be more diffuse. Within this model, localised reductions in drug crop cultivation will not necessarily be transmitted to major traders through the price mechanism due to the availability of drug crops within the region. In this model strong patron-client relationships and the threat of violence may restrict large traders from buying opium and coca from other regions despite lower farmgate prices. Consequently, where production continues to fall over a period of time and existing stocks are run down, local shortages will occur and prices may increase substantially despite an abundance of drug crops in neighbouring regions or countries. Within this model alternative development initiatives have a longer time frame in which to influence household decision making before provoking a response in prices that affect the competitiveness of alternative sources of livelihood.

This study explores the market structure of the farmgate opium trade, including the degree of competition, barriers to entry, profit margins, credit, the socio-economic profile of sellers, both pre and post-harvest, and the geographic mobility of traders. The strategies traders envisage undertaking in response to UNDCP?s Afghanistan Programme are also examined.

3. Methodology

This Study seeks to follow-up on a number of interviews conducted by the Drug Monitoring & Evaluation Specialist in 1997 with opium traders in Khakrez. Due to the sensitivities associated with interviewing opium traders and the problems of access, emphasis was given to conducting a limited number of in-depth semi-structured interviews. In order to verify findings and distinguish between generic patterns and localised issues, in-depth interviews were conducted over a wide geographical area.

In total 38 interviews were conducted with opium traders in the provinces of Nangarhar, Qandahar, and Helmand. Of these 38 interviews, fourteen were undertaken in the districts of Shinwar and Achin, Nangarhar province, between 14 and 18 June 1998. Twelve of these interviews were conducted with traders in opium, the other two interviews with recipients of advances from traders. Eleven interviews were held in the Shinwar district and three in Achin district.

To identify possible commonalities and differences between the opium trade in the eastern and southern regions, 26 interviews were conducted in the provinces of Helmand and Qandahar between 9 and 19 August 1998. Eighteen of these interviews were undertaken in Helmand in the districts of Kajaki, Musa Qala, Nowzad, Sarban Qala, with a further eight interviews in the district of Maiwand in Qandahar.

To verify the findings a number of key informants with in-depth knowledge of the opium trade were also interviewed in both the eastern and southern regions.

Interviews were semi-structured, focusing on a number of key issues in a conversational manner. A questionnaire was not used and notes were taken after the interview had been completed and the team had departed from the respondent.

In Shinwar interviews were conducted over a wide geographical area. Interviews in Achin served to further widen the geographical spread and to bypass the security problems associated with interviewing shopkeepers in Ghani Khel bazaar. In the South it was possible to conduct a number of interviews with large traders either in the opium bazaars or in a less public environment.

The degree of trust that UNDCP staff have established with the community in Shinwar proved invaluable in conducting the interviews with farmgate opium traders. Farmgate traders showed a willingness to talk openly about the trade in opium in the area and there was a high degree of consistency in the information provided by each respondent in both Shinwar and Achin. Indeed, the degree of consistency meant that 12 interviews were sufficient for analytical purposes. More interviews would not have provided any ?value added? but may have raised suspicions due to a shortage of gatekeepers for other traders.

As is evident from the response of opium traders in Ghani Khel bazaar there are sensitivities associated with those more heavily involved in the opium/heroin trade in the east. However, in the south these sensitivities were overcome through the close contacts that were established with large opium traders during a preliminary visit to the area. The sheer number of large traders, the decentralised nature of the market, and the mobility of trade between the numerous bazaars in the region, also made the environment more conducive to conducting interviews with individuals who traded in large amounts of opium.