Monday, March 20, 2006

Short opium futures

Well, as far as I can tell there is no futures market in opium, aside from a few such references cropping up in the results of a Google search. I must say though, that the post title's jesting tone belies the seriousness of the topic: Afghanistan's opium production and its link to the international drug trade.

Recent efforts to move Afghanistan's economy away from opium production have faltered, according to recent reports. A March 20 Financial Times article says farmers opium growing provinces were promised aid and compensation for not growing opium, but that delivery of funds and assistance has so far been limited. By all indications, farmers have scrapped compliance with the stated goal of eradicating opium crops and are instead increasing production.

"Afghanistan saw a 20 per cent drop in the area used to grow poppies in 2005, but a recent survey by the United Nations Office of Drugs and Crimes indicates that the crop is likely to surge this year. Diplomats say the areas used to grow opium may rise as much as 40 per cent nationwide."

Opium production dropped by nearly 50 percent in one Afghan province, after officials assured farmers they would benefit from aid for not growing. Many farmers have had to sell land and animals to repay debts to drug dealers who lend money using the next years crop as collateral. Public anger is evident; one public official admits it would have been better if nothing had been promised and villagers were simply told that growing opium is against the law.

I have to wonder how this will affect opium prices. Although acreage devoted to opium crop production decreased in 2005, total output (4,100 tons) remained virtually constant. The average farm gate price for a kilo of opium was $102 in 2005, according to this report.