THE BECKLEY FOUNDATION DRUG POLICY PROGRAMME

Understanding Drug Markets And How To Influence Them

Laura Wilson (Matrix Knowledge Group), Alex Stevens (University of Kent)

REPORT FOURTEEN

Report 14

1

Understanding Drug Markets And How To Influence Them
Laura Wilson (Matrix Knowledge Group), Alex Stevens (University of Kent)

The Beckley Foundation Drug Policy Programme (BFDPP) is an initiative dedicated to providing a rigorous, independent review of the effectiveness of national and international drug policies. The aim of this programme of research and analysis is to assemble and disseminate material that supports the rational consideration of complex drug policy issues, and leads to a more effective management of the widespread use of psychoactive substances in the future. The BFDPP currently chairs the International Drug Policy Consortium (www.idpc.info), a global network of NGOs and professional networks who work together to promote objective debate around national and international drug policies, and provide advice and support to governments in the search for effective policies and programmes.

Introduction
Prices are high
This paper provides a review for policy makers of what is known about the economic structure of illicit drug markets and the business operations of high level dealers operating within it. It is based on interviews with imprisoned drug traffickers and dealers in UK prisons carried out by Matrix Knowledge Group, and also owes a substantial debt to the valuable work done in this field by Peter Reuter, Jonathan Caulkins and Frederick Desroches, amongst others. The paper does not review the harms caused by law enforcement, some of which have been looked at in previous reports. It assumes that the structure of drug markets influences the primary harms arising from drug use (e.g. excess mortality and disease), the violence that is related to drug markets and the opportunity costs of people spending time and money on illicit substances. Some of these harms might be reduced by introducing alternative arrangements for the international regulation of psychoactive substances. These alternative arrangements are not reviewed here. Rather, the aim is to provide policy makers with information on drug markets as a basis for focussing enforcement resources, and devising more effective policies, to reduce the damage done by the trade in illicit drugs. Market size estimates are based on price data, and although the overall value of their trade may be roughly equivalent, heroin and cocaine are substantially more expensive than coffee or tea. The illegal status of heroin and cocaine means fewer ‘deals’ are done than is the case in the coffee market, but the subsequent enforcement of their illegal status also has the effect of raising the price far higher than that found in legitimate commodity markets. It has been estimated that the retail price of heroin is 30 times higher per unit weight than gold (Reuter & Greenfield, 2001). Prices are high because heroin and cocaine are scarce, but not in the sense that diamonds are. They can easily be cultivated in many different regions of the world. They are scarce because they are legally prohibited. But scarcity alone is not sufficient to generate high prices. High demand is also necessary. Where suppliers are relatively scarcer than buyers, suppliers have the upper hand in negotiations over price. This upper hand is more formally termed ‘bargaining power’ and in the trade in heroin and cocaine it is likely that suppliers have bargaining power over buyers at all market levels. As with all products, the price of illegal drugs increases the closer it gets to the end consumer. The path that a product takes from being produced to being ‘consumed’ is called the supply chain. At the global level our understanding of the heroin and cocaine supply chains is reasonable. Satellite technology provides us with estimates of the amount of land cultivated for opium and