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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

There was an overwhelming consensus amongst respondents that a shortage of adequate alternative income earning opportunities and increasing demographic pressures had compelled them to begin trading in opium. There was also a general agreement in both the eastern and southern regions that currently trading in opium offered higher profit margins than trading in other commodities such as livestock or agricultural goods. However, fieldwork also revealed significant differences between the structure of the opium trade in the eastern and southern regions that may assist in furthering our understanding of the process of centralisation that has occurred in the illicit drug trade in other countries.

Indeed, data on prices collected over the previous 12 months would tend to support the claim that there are distinct market structures in the eastern and southern region (see Table 1 and 2). Whilst it is recognised that there is a need to use a longer time series to be more conclusive, the trends in opium prices over the last 12 months tend to follow the pattern of a typical annual agricultural crop with opium prices reaching their lowest price during the harvest period and rising during those months following and preceding the harvest period. However, in the east prices do not seem to follow the same trend, fluctuating widely with no distinguishable pattern. It is possible that the absence of a trend similar to that experienced in the south may be a consequence of the process of centralisation that dominates the opium trade in the eastern region.

6.1. Centralisation in the east
All the farmgate traders interviewed in Shinwar indicated that they did not tend to buy opium from households within the district. It was suggested by respondents that the proximity of the inhabitants of Shinwar district to Ghani Khel meant that opium producing households were fully aware of the current price of opium and faced few logistical constraints in transporting their opium to the market. Consequently, most opium producing households sold their crop directly to any one of approximately forty shopkeepers in Ghani Khel bazaar who specialise in the buying and selling of opium.

The great majority of respondents in Shinwar indicated that the focus of their trade was in the outlying districts of Mohmand Dara, Khogiani and Rodat. The provinces of Kunar and Laghman were also popular locations for buying opium for farmgate traders from Shinwar district. The rationale for trading in these outlying districts and provinces was that prices were lower than in Ghani Khel.

Respondents indicated that their proximity to Ghani Khel gave them a distinct advantage over opium producing households and traders in the outlying districts and provinces. All respondents in both Shinwar and Achin and key informants indicated that Ghani Khel is the centre of opium trading in eastern Afghanistan. Consequently, major traders often visit the bazaar to purchase large quantities of opium for processing into morphine base or heroin. These purchases can consist of as much as ten metric tons of opium during one visit, resulting in local shortages in the bazaar and substantial increases in the price of opium.

Respondents and key informants indicated that the price of opium in Ghani Khel bazaar was determined by the demand for opium from these large traders, suggesting that when the processing and smuggling of opium and its derivatives is constrained by law enforcement activities there was a corresponding fall in the price of opium in Ghani Khel bazaar.

Farmgate opium traders in Shinwar reported that the fluctuating price in opium acts as an incentive for them to travel to outlying areas where the inhabitants are, either not fully aware of any increase in the price of opium in Ghani Khel bazaar, or, are unwilling to travel to Ghani Khel due to travel costs rendering the sale of small amounts of opium unprofitable. In Achin farmgate traders reported that they purchased opium in the more remote areas of the district for precisely the same reasons, selling the opium in either Ghani Khel or Kahi, the district centre, and formerly the centre of opium trading in eastern Afghanistan.

All the respondents indicated that there were no restrictions on their mobility and they could purchase opium from any individual in any village or district without fear of intimidation or threats from other traders, or the local authorities. Price and quality were the only determining factors when purchasing opium. For instance, one trader reported purchasing a total of 8 seer or 10 kg of opium from five different farmers in Lagliman for $34.40 per kg in mid-June. Each kg was sold the next day for $43.20 in Ghani Khel bazaar. The trader estimated that the costs he incurred were purely transport related and amounted to approximately $3.00. Indeed, the majority of respondents indicated that the mark-up on this type of rapid-turnover trade were between $3.00 to $9.00 per kg.

Respondents recognised that opium prices reach their highest during the period from October until April when there is a shortage of opium to be sold. Prices during this period can rise to over twice the level of the previous harvest price. The majority of respondents recognised that they should hold onto their opium and trade later in the year when prices were at their highest. However, few reported that they retained their opium for long periods of time as they were compelled to sell quickly due to cash flow problems.

Whilst Ghani Khel represents the regional centre of opium trading in eastern Afghanistan, key informants and respondents reported that there are also a number of district bazaars that operate as centres for a more localised trade. In Achin it was possible to interview a number of shopkeepers that traded opium from their general stores.

These shopkeepers indicated that they operated with very low overheads with both buyers and sellers trading opium with them on the shop premises. Whilst respondents indicated that in the rural bazaars in Achin shopkeepers colluded to fix the price of opium, advances were unique, arranged between the shopkeeper and individual household. One shopkeeper reported providing the equivalent of $3,260 in advances during the period from October until April 1997/98.

The shopkeepers interviewed indicated that they were not representatives of the larger traders operating out of Ghani Khel bazaar but acted independently. However, they did report that they had ongoing business relationships with specific traders in Ghani Khel. These relationships tended to have developed over a number of years and involved bulk purchases and the provision of loans to begin trading. For instance, one shopkeeper claimed under such an arrangement, a trader in Ghani Khel bazaar, who had provided the initial funds for him to diversify into opium trading, traveled to Achin each month to purchase opium from him in 60 kg loads. The maximum amount of opium this intermediary trader reported selling to Ghani Khel on any one occasion was 125 kg.

Key informants report that the dominant market position that Ghani Khel has secured within the opium trade in the east has led to many of the bazaars in the regions acting as tributaries, channeling local purchases of opium to Ghani Khel. Consequently, it is argued by key informants that the type of patron-client relationship that exists between large traders in Ghani Khel and smaller traders in Achin is not atypical for the region.

6.2. Decentralisation in the south
Interviews in the south revealed that, as opposed to the eastern region, opium prices vary very little from district to district. Typically the faringate price across the southern region for the highest quality opium ranged from $60.30 to $62.20 per kilogram, whilst the poorest quality, opium, was being bought at the faringate for the equivalent of $44.00 per kg. The best quality dry opium was being bought for $82.50 per kg, almost twice that of Ghani Khel.

The relatively high price of opium in the south was explained in terms of both significant reductions in the yield of opium poppy in the southern region in 1998 and the opening of the northern borders to trade, following the taliban's recent victories. Indeed, prior to fieldwork opium prices increased dramatically in the south from $32.00 per kg in May to between $60.20 and $63.20 per kg in August, twice that of the August price in 1997. However, as opposed to the mark-up reported in the east, the majority of traders interviewed in the south suggested that they earned only $1.20 to $3.20 per kg on the buying and selling of wet opium post-harvest.

Although respondents in the south were willing to travel further afield if prices were found to be particularly low, the nominal difference in the price of opium between areas resulted in a largely localised trade. Indeed the bulk of faringate purchases were in the district in which respondents lived or those neighbouring it. Further purchases required to satisfy bulk orders by cross-border traders were made at any one the numerous bazaars in the southern region. During the fieldwork it was possible to witness the mobility of trade between the numerous bazaars in the region through discussions with visiting traders.

Indeed, interviews revealed that in the southern region there are a number of bazaars where opium is purchased directly by traders from Pakistan, Iran and, less so frequently, the Central Asian Republics. Each of these bazaars has a number of shops which specialise in opium trading. However, during the harvest season it was reported that most of the shops trading in other goods diversify into small-scale opium trading.

Respondents indicated that Sangin had the largest number of specialist opium traders with around 200 shops in the bazaar selling only opium. There was also general agreement that Sangin has a higher turnover of opium than any other bazaar in the south, followed by Musa Qala. District bazaars in KaJaki, Nowzad and Maiwand were considered significantly smaller than Sangin and Musa Qala both in terms of turnover and numbers of specialist traders. Nevertheless, respondents and key informants reported that cross-border traders from Iran and Pakistan frequently visited these smaller bazaars to purchase opium directly.

Respondents in the south indicated that the trade in opium is competitive at all levels but not aggressively so. Indeed, where transactions were considered mutually beneficial traders are reported to cooperate on a inter and intra district basis. A number of examples of large shipments of opium consisting of contributions from numerous traders in the bazaar were cited by those interviewed. For instance, it was reported by a number of respondents that a group of traders had experienced financial problems as a result of a continuing delay in the payment for a large shipment of opium by Baloch traders. To both assist in resolving their financial problem and to incur the final benefits of the deal, a number of traders from Musa Qala agreed to pay the Sangin traders an amount equal to the value of the opium at the time that it was sold.

Yet, there were reports that intense competition between some of the major traders in the southern region had resulted in violence with attacks on caravans of opium by rival traders. However, it was suggested that such incidents were rare and on the whole the trade within southern Afghanistan was peaceful.