Afghan Opium and the Emperor’s New Clothes

Last week the UNODC launched its latest report on opium production in Afghanistan. Steve Rolles and I attended the presentation of the report at Chatham House by Antonio Maria Costa Executive Director UNODC and Bill Rammell, Minister of State Foreign and Commonwealth Office.

• UNODC's press release
  
  
• Rammell's comments
  
  
• Costa's comments

Their headline was the 20% reduction in opium cultivation which they welcomed (albeit cautiously) as evidence of new found success of their respective interventions in the region. Opium production, by the way is only down 6% (as yields per acre cultivated have risen).

The statistical annex on world drug prices and purity from the World Drug Report 2008, shows precisely how badly they are really doing - even by their own standards. It is now eight years after the Allied troops overthrew the Taleban and effectively took control of the country with one of the key aims being the eradication of the opium crop, and things really aren't going well given the billions thrown at the sprawling military-led anti-opium enterprise since 2001.



As they each informed the audience of the positive story coming out of Afghanistan, I was reminded of the story of the Emperor’s New Clothes. Explaining how opium production had declined in the north of the country, I began to feel like the boy in the fairytale who, not having any investment in admiring the Emperor’s new clothes, points out to the assembled crowd that he is in fact naked. The 'we're turning the corner' fantasy they present ignores the brutal realities of supply and demand economics: not only are they palpably not winning the war on opium in Afghanistan, but crop eradication, interdiction, and enforcement more generally are actually the prime cause of much of Afghanistan’s ‘drug problem’.

Prohibition is what makes an intrinsically low value commodity like opium more profitable than any other agricultural option for Afghanistan's mostly impoverished farmers. It is economic alchemy, whereby plants are transmuted into commodities worth literally more than their weight in gold. Even if supply side interdiction was more effective (and you try and eradicate 1500+ square kilometers of poppy fields scattered over an area the size of Western Europe, every year, forever) the effect would be be to push up the price, that in turn inevitably incentivises new entrants to the market, and new cultivation. It is an economist's dream; the completely unregulated interplay of supply and demand, and whilst the demand driven economic imperative exists (and there's no sign of significant change on that front) the best that can be achieved is temporary, marginal and localised supply side 'success'. The problem may move around a bit - but it doesn't go away.

An image of opium and wheat cultivation from the UNODC report

It is the war on drugs that makes Afghanistan’s more fundamental problems intractable; a point made very clearly by none other than Lord Adair Turner, head of the Financial Services Authority.

As you would expect, anyone who asked a challenging question, received a response, not a reply, with the ‘successes’ merely repeated. When I suggested to Rammell that a responsible government would expose the costs of the policy to a more thoroughgoing analysis (along the lines of the PM’s Strategy Unit Report 2003), he informed me that he did not agree with the critique (failing to say why) and, in time honoured sound bite fashion, that legalisation was a “counsel of despair”. When I interjected that I had not suggested legalisation and that I had merely called for them to include a scrutiny of the costs, he used the 101 Media Training line: “if you’ll let me finish…” with that studied pained look that media trainers the world over have taught to politicians to enable them to persist in not answering difficult questions. Steve similarly asked a question along the lines of the economic analysis above. Aren't supply interventions futile in the current context, especially given the long history of interdiction failure in the region and elsewhere? Again the answer was more of the same; repeating cherry picked successes, process achievements (that evidently have no bearing on 'outcomes'), and more 'turning the corner' type rhetoric. To quote Paul Flynn MP, we have now turned the corner so many times we have gone around the block several times - but not actually got anywhere.

Other stand out analysis from the presentation included:

• The fact that the report showed that production in the longstanding poppy growing area of Helmand, had actually increased slightly and that Afghan production still significantly exceeds demand.
  

• Costa admitted that insurgents (The Taleban) were stockpiling opium. His reasoning was that it must be insurgents, (because traffickers would not stockpile opium when the price was dropping). Why insurgents would wait until the price rose but traffickers would not, was not made clear…

At this point the economic analyst (something Costa has some claim to being, given his background) might look at the over-production of the last few years (global demand is only around 4000 tonnes Costa informed us, and we have no reason to doubt this estimate) and how it coincides with falling prices and conclude that stockpiling was a rational economic response for almost anyone in the Afghan supply chain. It is not only an insurance policy against poor harvests or any eradication and interdiction efforts they might fall foul of, but also, crucially, by restricting supply stockpiling will help boost the price again. Look at the graph below. This is exactly what happened in 2001. The Telaban banning production had nothing to do with religion. It was, in retrospect, a rather effective ploy to boost prices; they rose tenfold, and stockpiles from the bumper harvests of the two previous years meant that supply to the West was largely uninterrupted.


Again, this is raw economics writ large. Interdiction can only make the problem worse; even when it succeeds, it fails. Opium prices are still well above pre-2001 levels and the new report notably also estimated that the Taleban are now making $500 million a year from the trade.

• Part of the plan detailed at the presentation was to stop opium getting out of Afghanistan in order to keep prices low and thus dissuade production. As well as being similarly in denial of economic realities, this plan appears to ignore the fact that controls are all-but non existent on the lengthy border between Afghanistan and Pakistan, some of the worlds remotest and poorly policed territories. This is just next season's emperor's new clothes range.
  

• One final point made is worth flagging up. The switch in demand patterns from heroin to cocaine might be good for Afghanistan. Not only an extraordinary take on the balloon effect but also begging the question of how well this scenario works for Colombia.

The next time Rammell and Costa turn up for a double act to spin the latest 'successes' I expect more of the audience to point out the messengers' nakedness.

See also:

• The BBC's Mark Easton on the 'Missing Opium'
  
  
• Lord Malloch-Brown's comments on the report
  
  
• Costa being given a light grilling by Zaena Badawi on BBC's Hard Talk
  
  
• Exec Summary of the Report

• Medical use of Afghanistan's opium wont solve the problem