NPR reported a very interesting story this morning on the attempt to steer Afghanistan's thriving poppy crops away from the opium industry and toward the cosmetic industry.
For the past several years, a group of Afghan and foreign businessmen has been trying to offer an alternative, by urging farmers to grow flowers for perfume instead of for drugs. But it has been a frustrating and costly project.
See you after the jump.
From an economic standpoint, this seems like it could be an intriguing venture with some promise. The street price of heroin has apparently been falling in recent years due to the re-opening of the Afghanistan market after the U.S. invasion. While it is not incredibly easy to find reliable figures for the current street price of the drug, most estimates I found were somewhere around 90 USD for a gram of heroin, current as of a year or two ago. Compare this with the price of perfume: Yves Saint Laurent's Opium fragrance in parfum form, the purest form available to the public, retails for 106 USD for around one quarter of an ounce.
Naturally, retail/street prices are not direct reflections for the prices that farmers will receive for their crops; but they do account for supply and demand, which ultimately helps determine the final destination for the poppies grown in Afghanistan. Each of these industries presents challenges to the suppliers of the raw materials. There is inherently much risk in the trade of any illicit substance, but Afghanistan's political instability as of late has arguably made the trade less risky; the traders themselves are well accustomed to assuring the protection of the supplying farmers and their crops. The cosmetic or fashion industry--while categorically less risky--comes with its own caveats for farmers. While floral scents may always be in demand, Afghani farmers are not the only ones who can supply them--unless a brand is built out of their supply.
The Andean Regional Initiative (Plan Colombia) had some percentages of the money devoted to such projects. The initial project planned to convert farmers from coca to coffee and they hit the initial problem of an unstable market and low prices due to heavy competition built through the 1980s that carried into the 1990s. After the program began subsidizing these farms heavily to account for the difference in price, there was problem with FARC members destroying these alternative farms or going after the farmers, thus, it became necessary to try and protect the farms as well.
Consequently, private firms may have to offer both market protections and security protections from any illicit trade spillovers if they expect to be successful.
Posted by: Michael A. Allen | June 04, 2008 at 01:22 PM