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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

In the east, those traders that were not in immediate need of cash reported entering into agreements with shopkeepers in Ghani Khel to sell their opium. Respondents indicated that these agreements are based on the traders assumption that opium prices will rise. The shopkeeper is responsible for storing the opium and finally selling it at the highest possible price. The charge for this service is a commission of $0.08-$0.16 per kg to both farmgate opium trader and the final buyer.

Respondents indicated that this arrangement relies on trust between the farmgate opium trader and the shopkeeper as, not only does the price of opium fluctuate, but the opium will dry over time, altering the final weight and subsequent value of each chakai, or cake, of opium. Whilst most farmgate traders who were in immediate need of cash reported selling their opium to the highest bidder in Ghani Khel bazaar, those that used the commission system used the same shopkeeper over a number of years.

Respondents indicated that the commission system operating in the east also allows traders to spread the risks of robbery and interdiction, storing the bulk of their opium with trusted shopkeepers in Ghani Khel whilst retaining a limited supply of opium in the house for emergencies.

However, it is important to note that respondents interpretation of ?commission' differed between the east and south. In the south, respondents referred to commission in terms of the contracting and often sub-contracting of traders to purchase opium. This contractual arrangement between traders was reported to operate at all levels of the opium trade. Indeed, numerous examples of bulk orders of opium made by cross border traders were cited in the bazaars of Kajaki, Kishke Nakod, Musa Qala, Nowzad, and Sangin. Respondents indicated that where these orders could not be satisfied with existing stocks of opium, large traders might commission a number of smaller traders in other bazaars to meet the order. Again where existing stocks failed to meet the amount of opium ordered each of these traders would in turn, commission a number of individuals to purchase the opium from neighbouring districts and provinces.

Respondents reported that the payment on commissioned orders may be on delivery or in advance depending on the cash flow of those involved. For instance, in Nowzad a respondent reported that he had received a pre-harvest order for 270 kg of opium from an opium trader in Sangin, receiving the total payment of $5,940, or $22.00 per kilogramme, in salaam. To purchase the opium required, the respondent contracted a number of farmgate traders, offering them a salaam payment of between $16 to $19 per kg. These farmgate traders subsequently bought 180 kg of opium prior to the harvest from 30 separate households at a price of $12.50 to $16.00 per kg. However, with the poor harvest in 1998, only 3 of the 30 households that received the advance were able to repay the opium they owed in full. In order to improve his relationship with the trader in Sangin the respondent elected to repay the opium he owed in full, at some financial loss to himself. He believed that this strategy would strengthen the relationship between the traders, resulting in larger and more regular purchases in the future.

Respondents indicated that they only contracted farmgate commission agents during the winter months or when they had received bulk purchase orders from cross-border traders. Indeed, most respondents in the south reported that during the harvest period, those with opium traveled to the bazaar to sell. However, during the winter when the supply of opium is reportedly more scarce, and what is available is in the hands of the relatively wealthy, traders were required to travel to the villages to purchase opium. Although many of the traders utilised family labour for this task, those that traded in large amounts of opium contracted this function to ?trusted? individuals. All respondents indicated that trust, particularly when advance payments were made, was essential to the business relationship between trader and farmgate commission agent.

In the south only one respondent indicated that he was familiar with the commission system operating in Ghani Khel bazaar. This particular trader was taking commission of $1.20 to $3.20 on each kilogramme sold from his shop. He did not consider this to be particularly profitable, preferring to purchase opium in advance through salaam. However, his financial situation, arising from the theft of approximately 2700 kg of opium by Baloch traders, had left him little choice but to sell opium for commission.

10. Increasing profit through selling at the border

Respondents in Helmand and Qandahar indicated that an increasing number of traders were transporting opium directly to the border with Pakistan, Iran and Turkmenistan to increase their profit margins. Of those interviewed in the south almost 25% transported opium to the border areas.

The border price of opium was reported to increase to $73.00 per kg for the best quality wet opium and approximately $95.00 per kg for the best quality dry opium. However, those interviewed indicated that the border market is highly competitive with numerous cross-border traders offering marginally different prices according to the prevailing supply and demand at the time. The costs cited for transporting opium to the border ranged from $1.20 to $1.80 per kg.

The majority of respondents indicated that opium was dried prior to its transportation to the border. Two methods of drying were cited, the first which could often be seen in the bazaars, was to spread wet opium on a polythene sheet and dry in the sun; the second was to boil the opium in a metal container with water. It was suggested that dry opium was both easier to transport and had less odor than wet opium. Once dried, key informants and respondents involved in transporting suggested that opium was often separated into one kilogramme blocks, wrapped in polythene and covered in cloth ready for its final transportation across the border.

A number of respondents in the south claimed that they had been involved in transporting large amounts of opium to the border, including one shipment of 2 mt and another of 3 mt. It was widely recognised that the actual cross-border trade was a risky endeavour with the threat that traders from Iran and Pakistan would fail to return and pay for opium they had received in advance. However, once across the border respondents suggested that the value of the best quality dry opium was the equivalent of $126.00 at the time of fieldwork.