To Win in Afghanistan, Buy the Opium Harvest

Posted February 9, 2009

The United States is losing two wars — the war on drugs and the war in Afghanistan. The politics of these wars is complex but the economics is simple: the bad guys make a killing on drugs that are highly profitable only because they are illegal. Our solution has been to try to eradicate the crops of desperately poor farmers whose political support we need. In Afghanistan, we would succeed more quickly and at lower cost by simply buying the entire opium harvest as a part of a program to pay farmers to grow other things. How would this work?

Understanding the economics of opium in Afghanistan is a good place to start. Every year, The United Nations Office on Drugs and Crime conducts a remarkable survey of poppy farming in Afghanistan. They interview farmers, analyze satellite photos, classify poppies, document trade routes, calculate the capacity of heroin processing labs, estimate the value of the harvest, compute current Taliban inventories, and even determine the wages of local field hands. The UN then blindly issues routine calls for a war on drugs in Afghanistan — a classic example of a government agency doing an excellent job of gathering facts but a terrible job of understanding them.

BACKGROUND

Afghanistan now produces 93% of the world's opium, which is used to make heroin and morphine. 98% of the crop is grown in the south and west of the country, where it finances the Taliban. In southern Afghanistan, 73% of all households are involved in the production of opium — and roughly everybody else supports these households. Afghanistan has replaced the "Golden Triangle" of Burma and Laos as the center of world opium production.

The United Nations estimates that Taliban earned $300 million in opium profits last year. Drugs are far and away their major source of funding. The Taliban now produce enough heroin to supply 100% of world demand for the drug. As a result, they have been stockpiling heroin and growing so much that prices fell 20% last year. Destroy the opium economy and you radically limit the ability of the Taliban to operate.

Talib is Afghan for "students" but these guys were not economics majors or they would know that producing more than the market wants lowers prices and stockpiling goods that are declining in value is unwise. They did not even study Islam all that carefully. The UN reports that the main reason most farmers refuse to grow poppies is because it violates their religious beliefs.

In general however, cash trumps the Koran. In central, eastern, and most of northern Afghanistan, a farmer earns more money with non-poppy crops or is roughly indifferent economically. But in the south, poppies earn a farmer 45% more money than non-poppy crops. In the west it is 21%. The adjacent chart shows the result: a very high overlap between poppy production (brown dots) and Taliban control (red zones).

LEARN FROM IOWA

In 2008, payments to farmers for their dried poppies (the "farm gate" price) totaled $732 million. After processing, drug wholesalers sold the crop for approximately four times that. The Taliban impose a ten percent tax on all sales and own several processing facilities.

Legalization and eradication are not great options here. Since virtually all of the processed opium is exported, legalizing the drug in Afghanistan would have little effect. Eradication efforts work when accompanied by political leadership and crop substitution but cannot on their own disrupt the economics of Taliban-held regions.

When David Petraeus had to stop a civil war in Iraq, he paid insurgents to stop fighting. In Iowa, when the federal government is concerned that corn prices will drop too low, we pay farmers to not grow corn and we buy surplus corn at above market prices. As a permanent solution, this is brain-damaged (note that Obama named the former Governor of Iowa to run the Agriculture Department. His knowledge of farm subsidies would have been more valuable as Assistant Secretary of Defense).

In Afghanistan it makes a lot of sense to buy the poppy crop directly from farmers so long as you do it correctly. The government should announce in March that it will buy the 2009 poppy crop and provide income support to current poppy farmers for 2010 and 2011 so long as they grow a different crop. Only farmers growing poppies in 2009 would be eligible. Since poppies are a seasonal crop, it is too late for new farmers to join the club now. Normally guaranteeing sellers a sale is a quick way to grow supply — so we need a clear rule here.

What would we do with the poppies? Destroy them — or if they are medicinally usable, stop paying Turkey to produce medical opiates. But assume the crop has no value. Destroying a huge portion of the world's opium
supply will cause the price of opium to skyrocket and will presumably attract others to the business. Near term this is fine — our goal is to starve the Taliban of financing not rid the world of opium. If you want to get rid of illegal opium growers, you countries with a demand for heroin have to make it obtainable in a safe, medically
supervised form to those who need it. There are other other good reasons for doing this outlined here.

The Taliban cannot compete in legalized markets. In 1999, the US could produce
the equivalent of 1 kilogram of morphine for $56. The
current cost in Afghanistan is approximately $450 — meaning that the
Taliban can only supply heroin to countries kind
enough to drive the price up by making the product illegal.

To qualify for purchases at slightly above market prices, farmers will need to decide what alternative crops they wish to grow. Afghanistan was once known for fantastic raisins made from local grapes and for pomegranates (which the US spends $12 million a year urging local farmers to grow for export — with some evidence of success). These crops take 2-3 years to establish, which is why we need a period of income support to allow farmers to shift from opium to any crop but cannabis, which is emerging as a substitute in some areas. The UN says that Farah and Nimroz (as well as Zabul and Day Kundi) are great places to
start, since opium cultivation is high but support for the insurgency
are lower than further south and these are not places that are especially favorable for growing opium.

Once we outbid their customers, we should continue to attack processors, rogue growers, and middlemen directly. We should warn populations that we treat heroin processing labs as military targets. We need to find and destroy the (large) stores of opium held by the Taliban. Special efforts to stop the flow of the chemicals used to process heroin, especially acetic anhydride, appear to help. Getting Iran, Pakistan and China to take more aggressive steps in disrupting supply routes and money laundering makes sense since these drugs are heading for their countries. These are difficult now, because the Taliban control supply. Once we control supply, these steps become realistic steps.

What would this cost? Well, the current farm gate price is $735 million, so figure $1 billion a year for three years of price support, administration, enforcement (mainly of bribes to local warlords — war really is hell), and logistics. In military terms, this is nearly free because farmers tend to like their customers, so in addition to cutting off funds to our enemies, we are buying at least temporary loyalty from their subjects.

This effort needs to complement, not replace, normal counterinsurgency initiatives. We still need to feed the destitute, support other farming initiatives, build a high integrity system of justice, and send Taliban combatants a well-targeted missile when we find them. A PR campaign to make it clear that Osama Bin Laden is a heroin dealer who defiles the Koran wouldn't hurt either.

Counterinsurgency operations cannot turn around the war in Afghanistan can succeed unless they they address the economic needs of poor farmers and make long term economic sense. Buying the Afghan poppy crop as part of a program to transition farmers to licit crops and disrupt Taliban funding made sense under the Bush administration but was never seriously considered due to the ideological blinders worn by senior administration officials. We will soon know whether Obama can think about the problem differently.