Last week, the UN Office of Drugs and Crime released its highly anticipated 2004 Afghanistan Opium Survey, which assesses the state of the opium industry and its effects on the population. The prognosis is probably worse than you think…

Media attention has focused on the increase in poppy cultivation in Afghanistan, which is certainly dramatic: a 65% increase in the land devoted to poppies since last year. But this increase was widely anticipated, and was partially offset by decreased yields per hectare of land under cultivation. A more troubling trend is the extraordinary increases in profits to opium traffickers—combined with a decrease in revenues to poppy farmers.

 Since the fall of the Taliban, Afghanistan's drug production has increased tenfold, returning to and then even surpassing Mujahadeen-era levels. The opium trade continues to fund a cohort of dangerous characters, both within Afghanistan and in the criminal syndicates of Europe and Asia. Yet there has been at least one bright side to the drug trade: it injected much-needed capital into one of the world's poorest country's and helped feed impoverished farmers who had been buried in rural debt following a three-year drought. Despite the problems it fueled, opium was a major factor in the remarkable increase in Afghan living standards over the past three years. (see Afghanistan Watch's Interview with Pierre Chouvy and "Opium in Afghanistan: people and poppies, the good evil" (PDF)).

If these year's figures are correct, this one short-term human development upside to the drug trade is in decline. Last year, for every dollar in drug revenues entering Afghanistan, farmers received forty cents and traffickers sixty. This year, however, traffickers pocketed eighty cents and farmers twenty. The gross income a farmer earned off a hectare of poppy decreased almost by two-thirds, from $12,700 to $4,600, and since the vast majority of poppy farmers have less than half a hectare under cultivation, this resulted in a drop in per capita income among families that cultivated poppy from $600 to $260—or less than 75 cents per day.

To put this in context, the drug trade equaled 60% of Afghanistan's GDP, and eighty percent of these illegal revenues went to traffickers, as well as to the corrupt officials and warlords that support them.

Why did farmers lose?

What is behind declining revenues for opium farmers? Well, for starters farmers experienced lower yields, even from last year's mediocre crop. Some of the decline can be attributed to poor agricultural practices: farmers failed to rotate their crops and expanded poppy fields to suboptimal land. But the main factors in the decline in yields were drought and disease, which made this a bad year for across the board for Afghan agriculture (wheat yields were also down 47%).

The second factor in decreased revenues is that farmers received much less money (-67%) for each kilogram of opium they sold. This drop in prices was caused in part by an increase in the supply of opium, which was produced by more families (+35%) and in greater quantities (+17%) than in 2003. But this alone cannot explain the depth of the price plunge; we must also factor in price fixing by traffickers and the speculative nature of the market for opium. First, in many parts of the country, traffickers can increasingly manipulate market prices by negotiating with regional power brokers to become the only purchaser for a region; this practice has become more widespread as the drug trade becomes more vertically integrated. Second, the UNODC report and other expert analysis has pointed to the highly speculative nature of the opium market, and suggested that the price plunge was the result of the bubble bursting on Afghanistan's domestic opium market.

How are Traffickers Getting Ahead?

The key factor is that prices for opium at Afghanistan's borders remained high, even as the domestic market bottomed out. The UNODC report doesn't study trafficking patterns and notes that available information on trafficking is patchy. It is possible, of course, that international opium prices will eventually decline (there was about a six month time-lag after the Taliban ban), but even then traffickers will have reaped a windfall profit. Nevertheless, the report suggests that "At the borders, stable heroin prices are the likely result of law enforcement, which has made it more difficult for traffickers to refine and smuggle drugs across the country." In other words, the higher price that traffickers received on the international market was partially due to more effective customs enforcement and interdiction.

This highlights a paradox that has confounded drug control efforts the world over: the more successful you are at interdicting drug trafficking, the more supply drops, prices rise, and incentives to trafficking grow. Researchers who have studied the path of drugs to markets note that along a drug route, profit margins are proportional to the level of risk involved. The tighter a border, the greater the incentives to run it; the more drug labs are destroyed, the greater the incentives to build drug labs.

It is frequently suggested that the only just or feasible approach to Afghanistan's drug problem is to go after the traffickers and drug labs while not targeting farmers. But the UNODC's analysis suggests that this strategy of targeting traffickers and heroin facilities—Afghan authorities claim to have destroyed more than 150 labs in the past year—may have had the perverse effect of driving up the international price of heroin and enriching traffickers at the expense of farmers (even as the net outflow of drugs declines.) In fact, with Afghanistan gaining a near-monopoly on world opiate production (87%), a glut in opium sap combined with a shortage of processed opium and heroin is an ideal condition for traffickers to maximize profits. This dynamic serves to strengthen the armed factions that are engaged, actively or indirectly, in the drug trade.

This is not to suggest that 'going after the bad guys' shouldn't be part of the solution to the drug problem, but that targeting traffickers and refineries and border crossings will have multiple consequences which need to be addressed as part of a comprehensive plan. The developments detailed in the UNODC report—as well as past experiences in Colombia, Thailand, and Burma—suggest that any plan must have enough flexibility to adapt to inevitable surprises, whether they be thrown by mother nature or speculative commodity markets.

An Emerging Plan

In Washington, the Pentagon has reportedly been drawing up a 'master plan' for dealing with Afghanistan's drug problem, and on Wednesday U.S. drug enforcement agencies requested a sixfold increase in the country's counternarcotics programs. According to the Associated Press, the plan would eradicate five to seven times the 10,000 acres destroyed this year, and would provide $100 million in aid to Afghan farmers to plant alternative crops. The funds would also go toward finding and prosecuting traffickers, and destroying drug labs.

While a massive increase in anti-drug efforts is promising, the central question is whether Congress chooses to appropriate new money for these efforts, or instead divert funds from existing Afghanistan programs. At $780 million, the proposed counternarcotics program would equal almost three-quarters of the total reconstruction aid that the US gave to Afghanistan this year (though it is dwarfed by military expenditures, which total $769 million each month.) Any diversion of development aid would prove counterproductive, since in dealing with drug economies, security, development, infrastructure, and legal reform are all interconnected. A plan must be comprehensive in implementation as well as name if it is to succeed.

Carl Robichaud is a program officer at The Century Foundation. This article originally appeared in Afghanistan Watch.