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September 11, 2010 / jeni

Cocaine: Who Profits?

Everyone knows there is serious money to be made in the cocaine trade. But the supply chain between coca farmers in the Andes and cocaine users in the US and Europe is long and contested — where do the profits lie?

According to the UNODC report The Globalization of Crime, the largest profits in the cocaine trade are found at the same level as in the trade of legitimate goods:  between wholesalers and consumers.

Some 196 tons of cocaine are needed to satisfy US demand, a flow valued at US$38 billion in 2008, but this money is not evenly distributed. The coca farmers in the three Andean countries earned about US$1.1 billion that year. The amounts generated from processing and trafficking activities within the Andean countries for cocaine destined to be shipped towards North America amounted to around US$400 million. The total gross profits accruing to those importing cocaine to Mexico can be estimated at around US$2.4 billion (excluding costs of shipping) and the Mexican cartels reaped US$2.9 billion that year moving the cocaine across the border into the USA. The largest profits, however, are generated within the USA: US$29.5 billion between the US wholesale level and US consumers. Out of these gross profits, the bulk is made between the mid-level dealers and the consumers, accounting for more than $24 billion or 70% of the total size of the US cocaine market.

A similar pattern is seen in the trade to Europe, although international traffickers claim a larger share of the market’s value.

[A]bout 124 tons of cocaine are distributed in Europe, worth some US$34 billion. It appears that less than 1% of the value of cocaine sales in Europe goes to the Andean coca farmers, and another 1% goes to traffickers within the Andean region. The international traffickers who ship the cocaine from the Andean region to the main entry points (notably Spain) obtain 25% of the final sales value. A further 17% is generated in shipping the cocaine from the entry points to the wholesalers in the final destination countries across Europe. The largest income is generated in the destination countries, between the wholesaler and the consumer, generating more than 56% of the total.

I’m highlighting this breakdown here primarily because it’s a question I’ve often been asked — what is the value of the drug trade in different segments of the supply chain? — and specific figures are hard to come by. Even in this report, UNODC does not attempt a similar breakdown for profits in the heroin trade, for example.

However, the implications of this assessment remain up for debate. An initial reading would tend to support the argument that the demand side of the cocaine trade — i.e., the US domestic market — should be the primary focus for counter-strategies, as it represents the largest share of the overall market. Yet the fact that per capita profits are highest on the supply side of the chain supports a strategy of targeting production and distribution in South and Central America.

In any event, it’s helpful to keep in mind the monetary resources available to the armed groups currently wreaking havoc in Mexico and elsewhere — the inability of the state to pacify the Mexican cartels becomes more understandable when one realises they have nearly $3 billion of annual income at their disposal.

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2 Comments

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  1. ALM / Dec 27 2010 18:28

    Ref UNODC and the breakdown on heroin trade: check out the chapter on heroin on the same report and the follwing World Drug Report 2010

  2. ALM / Dec 27 2010 18:36

    For Mexican oganized ( and always more disorganized) criminal organization cocaine and drug trafficking to the US is just one possible economic activity. probably it is not even the most attractive one because of competion, risk and overall saturation of final destination market ( see cannabis trafficking or the resurgence of direct cocaine trafficking route bypassing mexico). Accordingly the Mexican situation ( and related responses) must go well ahead of the trival drug trafficking paradigma ( producing/transit/ consumer countries) and be seen as a sistemic challenge by (dis)organized crime to the rule of law and the overall wealth redistribution mechanisms in a young democratic newly industrialized country

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