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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

Respondents in the east considered the costs associated with the opium trade as negligible, comprising only of local transport costs, including taxi or bus fares. Similarly, the majority of traders in the south indicated that the costs they incurred were minimal. Indeed, to further minimise costs most of the respondents in the south had used the income they had earned from their trade in opium to purchase a car or motorbike for transportation.

Most of the opium traders interviewed in the south operated out of rented shops in the bazaars, whilst some traded opium directly from their houses. Generally each shop was furnished with a standard set of equipment, including (i) a heater with metal plate and knife for testing the quality of opium; (ii) polythene sheeting and bags for drying opium; (iii) plastic and metal bowls for storing the opium; (iv) metal boxes for storing money and other valuables; (v) scales and weights; and (vi) a large metal container for boiling wet opium with water.

Other costs cited included wages for employees, including security guards and the specialist in weights and measures, known as the tarazoo dar. The payment for both security and the tarazoo dar tended to be shared between neighbouring shops with the tarazoo dar receiving a commission of less than $0.10 cents per kg of opium weighed. A number of traders in the south also indicated that they paid tax on their income, known as zakat, to the district administrator, or woliswol.

8. Increasing profits through the provision of advances

Over 60% of all respondents provided cash advances to farmers on their future opium production. Whilst this system of advance payments, known as salaam, operates for a number of different agricultural products, including wheat and black cumin, opium is the preferred crop of lenders.5/

Respondents indicated that the provision of salaam to farmers was dependent on their personal cash-flow. Almost half the traders interviewed in the east, indicated that in the period when farmers most require advances, prior to planting in October/ November and during the winter months, they themselves did not have cash surplus to their own needs. This was perceived as unfortunate by these traders as they believed that the provision of advances would substantially increase their profit margins on opium trading. Only one respondent in the east and two respondents in the south indicated that they thought the provision of advances was un-Islamic.

Those that provided advances in the east were generally shopkeepers. Over 60% of the traders interviewed in the south provided advances, the amount of opium they traded varied from 2.2 mt to 20 mt. In the south, respondents reported that the advance system can operate at all levels of the opium trade, sometimes connecting cross-border trader in Iran or Pakistan to opium poppy cultivator in southern Afghanistan.

All of those respondents in Shinwar and Achin who reported providing advances in January paid an advance of $26.00 per kg to those farmers considered trustworthy and only $20.80 per kg to those who were considered a risk. One shopkeeper highlighted the risky nature of this system claiming that one of his risky farmers had absconded with his and other shopkeepers money. Respondents who provided advances reported selling the opium they bought on advance for $20.80 to $26.00 per kg, at a rate of $47.80 to $76.00 per kg. As such traders who provided advances reported a mark-up of $21.80 to $55.20 per kg compared to only $3.00 to $9.00 per kg for those with limited cash-flow.

In the south , respondents indicated that salaam had generally been given at a rate of $12.70 to $19.00 per kg in January 1998. Given a post harvest price of $60.30 to$62.20 per kg, traders had the opportunity to earn significant profits on the opium they purchased in advance. However, there were numerous reports of recipients of salaam payments failing to repay their debts in full due to the poor harvest in many areas in 1998 and a number of incidents where recipients simply absconded.

Whilst it was generally recognised that salaam provided traders with the opportunity to significantly increase their profit margins, most expressed some caution regarding the number of advances they offered. Generally, respondents reported offering salaam to a few trusted individuals. Indeed, of those respondents who offered salaam in the south, only one trader received more than 5% of his total trade in opium through salaam payments. This particular respondent was reported to be one of the largest opium traders in Musa Qala, purchasing approximately 9 mt of opium per annum, and providing advance payments on approximately 15% of his total trade.

Those respondents that provided advances in the east suggested that it was not essential for a farmer to grow opium to obtain a loan, however repayment should be made in opium. In the south, respondents indicated that they only provided salaam to those involved in the cultivation or trade of opium. However, given the predominance of specialist opium traders amongst those interviewed the emphasis on opium cultivation and trade as a condition for lending should be of little surprise.

Respondents indicated that the size of the advance depended on the month and the ?trustworthiness? of the farmer. In Shinwar and Achin respondents indicated that those farmers that were known to the shopkeeper and known to produce opium obtained a preferential rate compared to those requesting an advance for the first time. In the south ?trustworthiness? was defined by respondents in terms of whether the individual and his family were known in the area, whether they owned land, and whether the opium that they had previously repaid in return for salaam was of good quality.

Indeed, a number of respondents in the south suggested that they did not give salaam due to the quality of opium that they had received as payment in the past. Other respondents suggested that in order to ensure that they received good quality opium in return for salaam they wrote the name of the debtor on the polythene bags in which it is kept. If the quality was found to be poor, the opium is returned and a cash payment is demanded.

�Those respondents providing advances viewed them as a service to those households enduring hardship. Respondents indicated that advances were provided on the basis of need and were available to both landowners and the landless. Those shopkeepers that provided advances indicated that whilst advances were generally requested by poorer households, wealthier members of the community also took advances for household emergencies.

If debts could not be repaid in opium due to a failed harvest, some traders indicated that they would take back the same amount as advance in cash. These tended to be small traders who insisted that they did not have the cash flow to delay the payment until the following year. However, some of the larger traders in the east, including the shopkeepers indicated that those advances that were not repaid at harvest would require repaying at double the amount of opium the following harvest.

In the south, a number of respondents suggested that the failure by some sharecroppers to repay their salaam payments was not viewed as particularly detrimental, claiming that inexpensive and ?trustworthy' sharecroppers were scarce and that ongoing debts would ensure that they did not relocate.

5/ For a more detailed account of local informal credit systems in Afghanistan see UNDCP's Strategic Study 3: The Role of Opium as a Source of Informal Credit, October 1998.

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