The Economics of an IllicitMarket

The only difference between the drug market and a legitimatemarket is that drugs are, of course, illegal. While this fact may seem simple,it has a profound effect on the economics of the drug industry. Prohibitioncauses the formation of an underground black market. Experts argue about howprohibition affects the demand of the market, but the more significantdifference is in the supply. Production costs are much higher because of therisk of incarceration. This risk is too high for most people, causing fewersuppliers to enter the market. With fewer suppliers, the market becomes moremonopolistic, meaning producers are able to artificially increase theirmargins, which creates a very profitable industry. The illicit nature of drugsalso causes a large negative externality: violence.Violence is the result of a lack of proper dispute resolution mechanisms in anillicit market. Whereas a court or other legal entity would handle a disputebetween market participants in a legitimate industry, a dispute over a contractfor drugs will be settled with guns. This problem is furthered by the fact thatmany members of the drug trade use the profits to fund other illegaloperations.

The Departure: Where Do Drugs Come From?

Statistics related to transnational drug trafficking are oftendifficult to ascertain due to the covert nature of the industry. However, acomparison of production and consumption statistics can provide a proxy forthese figures. After all, cocaine from Colombia cannot enter the nose of a drugaddict in California without being trafficked across borders. The origin, or departure,of drugs is often where they are produced. However, in some instances,pinpointing the start of the journey can be a bit more complex.

Marijuana

The cannabis plant, from which marijuana is produced, grows easilyin almost every climate. It alsohappens to be the most widely used drug worldwide. As a result, marijuana isproduced on every continent and in almost every country in the world. Since thelocal demand for marijuana is almost unanimously high and its cultivation is sowidespread, the production of marijuana has become more localized. However,because of its prevalence, marijuana is still the most widely trafficked drugeach year. Attempts to estimate statistics for marijuana production are metwith severe deficiencies in the data because of lack of information. Therefore, estimates of cannabis herbproduction ranged from 13,300 to 66,100 metric tons in 2009. Statistics are also kept for aseparate form of marijuana—cannabis resin (i.e., hashish). Unlike cannabisherb, cannabis resin is processed and comes from the flowers of the cannabisplant. Whereas cannabis herb is produced mostly for domestic markets, cannabisresin is more often trafficked internationally. The leaders in cannabis resinproduction are believed to be Morocco and Afghanistan.

Cocaine

Unlike marijuana, the production of cocaine is centralized in oneregion of the world. The coca bush, the plant from which cocaine is produced,can be cultivated only in specific climate zones and is native to SouthAmerica. As a result, the cultivationof the coca bush is limited to the Andean region of South America, where it isestimated that almost 100% of the world's supply of cocaine originates. Infact, production is—for all intents and purposes—limited to three countries:Colombia (43%), Peru (38%), and Bolivia (19%).

Opium/Heroin

Heroin and other opiates are produced from the opium poppy plant.Opium poppy is mostly cultivated in three countries: Afghanistan (66%), Myanmar(17%), and Mexico (10%). However,when opium is processed, the output of heroin (by mass) is about 10 times lowerthan the initial input of opium. Afghanistan is, by far, the leading producerof heroin with 83% of the global share. The remaining share is split amongMexico, Myanmar, India, and Colombia.

Amphetamine-Type Stimulants(ATS)

Like cannabis, the production of ATS is dispersed across manycountries. ATS, however, are avery different type of drug because the production of ATS is much less simplethan other drugs and it is not geographically limited. ATS must be manufacturedfrom precursor chemicals that derive largely from India and China. Themanufacturing of the drugs, therefore, becomes more localized, and traffickingbecomes mainly intraregional. Like cannabis, statistics on the manufacture ofATS are also not readily available because of the hidden nature of themanufacturing process. However, the precursor chemicals—ephedrine andpseudoephedrine—are more often trafficked transnationally. As such, there aretwo types of substances being trafficked: the precursor chemicals and the ATS.Since ATS trafficking is more regionalized, the larger transnational problem isthe movement of these precursor chemicals.

The Destination: Where Are Drugs Going?

Once we know where the drugs come from, we need to know theirfinal destination. This destination is ultimately the consumer. However,transnational traffickers rarely transport the drug the entire distance betweenthe producer and the consumer. More often, the true “destination” for thesetraffickers is a port of entry in a country, where the local traffickers anddistributers will account for the remaining distance to the consumer. Still,consumption statistics by country provide valuable data because the country ofconsumption and the true destination are usually one and the same.

Marijuana

Marijuana is the most widely consumed drug worldwide. As mentionedearlier, reliable production and consumption statistics are not available formarijuana for various reasons. However, data with respect to the amount ofmarijuana users are available, which can be used as a proxy for the amount ofmarijuana consumption. These statistics vary because of uncertainty in Africaand Asia, but estimates of the global share of marijuana users are as follows:Asia (26–34%), Africa (17–29%), North America (16–26%), Europe (14–23%), andSouth America (16–26%). Under either estimate, it is clear that consumption iswidespread.

Cocaine

North America consumes, by far, the most cocaine worldwide at 41%of the global supply. Of this amount, the United States consumes 88%, making itthe largest consumer of cocaine at an astounding 36% globally. Europe and SouthAmerica come in second and third place with 29% and 19% of total globalconsumption, respectively. Africaconsumes about 5% of cocaine, and Asia, although containing over 60% of theworld's population, consumes only 3% of all cocaine.

Heroin

The most popular and widespread opiate is heroin, which isconsumed all over the globe. Europe has the largest market for heroin with 38%of global consumption. In a close second is Asia with 34% ofglobal consumption. Like marijuana, the consumption of heroin is spread outevenly worldwide.

ATS

With respect to the market for precursor chemicals, the true“destination” for drug traffickers is the place of manufacture. Manufacturingstatistics vary based on the end-product drug. Experts estimate that the mostsignificant manufacturing locations for methamphetamines are Mexico, the UnitedStates, and East and South-East Asia. Ecstasy, however, has traditionallybeen manufactured in Europe, although there have been recent increases in otherregions, including Asia, North America, and Latin America. As for the processeddrugs, for which the destination is the consumer, consumption levels areestimated to be the highest in Asia for ATS as a whole. However, likemarijuana, ATS are consumed fairly consistently worldwide.

The Route: How Are the Drugs Getting There?

Now that we have established where drugs begin and end theirjourney, we can discuss the more relevant component—the trafficking route. Likean international flight, the route is rarely a direct shot from departure todestination. Rather, there is often a layover—or mid-shipment location—wherethe drugs are handed off between traffickers. Thiseffectively bifurcates the trafficking process into two segments: exporting thedrugs from the production state and importing the drugs into the consumptionstate. For example, on the route from Colombia to the United States, Colombiantraffickers are often responsible for transporting the drugs only to amidpoint, such as the Bahamas or Cuba. The following data derive largely fromdrug seizure data based on location.

Marijuana

The trafficking of cannabis herb has recently become more of alocal operation because it is often locally sourced. As a result, the largestamount of cross-border trafficking of cannabis herb is intraregional. In onesurvey, responding countries indicated that 75% of the cannabis herb traffickedin their country was locally sourced. Despitethe widespread production and consumption of cannabis herb, 70% of all seizuresoccur in North America. A large portion of these seizures was Mexican marijuanaon its way into the United States. Basedon global seizure data, it appears that the most highly trafficked route ofcannabis resin is from Morocco to Europe, to Spain in particular.

Cocaine

Since the production of cocaine is so centralized, the traffickingpatterns are much easier to discern. Therefore, it comes as no surprise thatthe most highly trafficked routes are from the Andean region of South Americato the United States and Europe. Interestingly, the midpoint for shipments toEurope was often West Africa.

Heroin

Like cocaine, the production of heroin is centralized, but ratherthan being produced in one region, it is in one country—Afghanistan. Again,this makes the trafficking routes easier to follow. As with cocaine, there isoften a mid-shipment point and sometimes more than one. On the route fromAfghanistan to the United States, Pakistan is often the mid-shipment point.However, from Afghanistan to Europe, heroin likely takes one of three routes:through Africa, through the Middle East, or through Russia.

Amphetamines

Although production and consumption statistics are uncertain, thetrade of ATS has developed distinct trafficking routes. The movement ofprecursor chemicals is called diverting, not trafficking, because the drugsthemselves are not necessarily illegal. As control over these chemicalsincreased in the United States, traffickers have funneled their supply toMexico. The most established routes are, therefore, from China and India toMexico.

Manufactured ATS are mostly trafficked locally, but there is stilla great deal of transnational movement. The flows of amphetamines and ecstasyare mostly from Europe toward South America. Amphetamines traffic isregionalized to mostly Europe. The traffic of methamphetamines, however, ismuch more widespread.