AAN Q&A: An established industry – Basic facts about Afghanistan’s opium-driven economy
Scored capsule of a opium poppy flower, Laghman province 2006. Photo: Thomas Ruttig.
Afghanistan’s unflattering label – the world’s leading producer of opium and its derivatives, morphine and heroin – has proved hard to remove. Over the last ten years, opium cultivation has increased steadily reaching unprecedented highs, whilst eradication levels have been decreasing and the country has slowly slid into more severe poverty. To see where Afghanistan stands now, AAN’s Jelena Bjelica has scrutinised the latest socio-economic study on Afghan opiates by UNDOC and discusses the main facts that portray the country’s opium economy, identifying those who profit, how insecurity and cultivation are linked, and how gender relates to opium cultivation.
- What is the size of the Afghan opium-driven economy?
According to UNODC estimates, Afghanistan annually produced between 3,300 and 7,400 metric tons (mt) of raw opium in the period 2006–16. The annual fluctuation in production is related to cultivation levels and the quality of opium gum, ie the opium yield per hectare, which varies from year to year (see graph on p34 in this report for a full overview of production levels in the period 1994–2016). This annual production represents around 90 percent of the world’s annual illicit opiate needs. (1)
After a brief decrease in 2015 (a cultivation level that was still among the top five years since 2005; see also this 2015 AAN analysis), illicit production boomed again in 2016. According to UNODC’s 2016 Opium Survey, the overall area used to farm opium poppy increased by ten percent, from 183,000 hectares in 2015 to 201,000 hectares in 2016. Although last year’s cultivation did not reach the record high of 2014 (when an estimated 224,000 hectares were planted with opium poppy), 2016 cultivation levels were among the three highest recorded (after 2014 and, 2013* at 209,000 hectares). [*corrected on January 15, 2018]
The gross value of Afghanistan’s opiate economy in 2016 was estimated at slightly over three billion US dollars. (This economy covers the cultivation, production and trafficking to the borders. It includes the total value of the domestic opiate market, as well as the value of opiate exports, before they leave the country.) This gross value was equivalent to around 16 percent of Gross Domestic Product (GDP) which the Central Statistics Organization (CSO) of the Afghan government (quoted by UNODC here,) estimated at 18.54 billion USD for 2015/16. (The World Bank estimate, which covers the western calendar year, was valued at 19.2 billion for 2015.)
According to the UNODC report, the value of the Afghan opiate economy in 2016 was almost double that of 2015. This exceeded the value of the total licit exports of Afghan goods and services, which constituted 7.3 percent of GDP in 2015. The drug-driven illicit agricultural economy also was worth more than two-thirds of the entire agricultural sector of the country.
UNODC attributed this sharp increase in relative value of the opiate economy to two main factors: an increase in opium production by 43 percent in 2016, and an increase in heroin prices across the borders of Afghanistan. This meant that, even though the overall area used for opium cultivation only increased by ten percent, the gross value of the economy rose by much more.
In the past, the relative economic importance of opiates has been even higher. As UNODC points out, from 2003 to 2007, the potential gross value of the opiate economy was equivalent to almost half of Afghanistan’s total licit GDP—even though its value in absolute figures was lower. UNODC explains the obvious: this decrease in value relative to the GDP has been “mainly due to the increase in GDP and not to a significant reduction in the production or cultivation of opium.” It should also be remembered that the sharp increase in value of the Afghan opiate economy in the early 2000s was directly related to the Taleban poppy cultivation ban in the summer of 2000. This reduced the 2001 harvest to one-tenth of earlier levels, which led to a ten-fold hike in prices (from 35 USD to 350-400 USD per kilogram of opium). In 2002, the potential gross value of the Afghan opiate economy was estimated at 1.2 billion USD; a fourfold increase over that of the 1990s (see this 2002 UNODC socio-economic study).
Since 2002, the gross value of opiate economy has fluctuated between 1.4-3 billion USD per year (see the graph on p14 in this UNODC report). The annual gross value of the opiate economy has generally averaged around two billion USD. The relatively stable annual gains from the opium industry over the last 15 years show that this is an established economy.
- How much is earned by the farmers?
Although the gross value of the opiate economy is staggering, poverty in Afghanistan has continued to increase (see, for instance, the World Bank’s latest Poverty Status Update). The most recent increases in poverty are largely due to the decline in aid and economic growth, as well as the escalation of conflict.
A large portion of the rural population is involved in opium poppy cultivation. In the 2016 survey, UNODC found that opium poppy was cultivated in about one in every three villages; although the geographical spread varied widely. In the Eastern region (Kapisa, Kunar, Laghman, Nangrahar, Nuristan), opium poppy cultivation was reported in every second village, while in Helmand province this rate was as high as 90 percent and accounted for almost 20 percent of the total area of agricultural land.
The farm-gate value of opium in 2016 (ie the potential gross amount earned by poppy farmers that year) – the first link in the value chain of cultivation and production – was an estimated 898 million USD. This records an increase of 57 percent compared with 2015. The value represented five percent of Afghanistan’s total GDP, more than one fifth of the entire agricultural sector, and a bit less than a third of the overall opiates economy (2).
The UNODC survey (3), found that “opium poppy farmers reported a higher cash income than other types of farmers.” On average, opium income accounted for almost 60 percent of the households’ annual income in the opium-growing villages. Infrequently, opium poppy farmers earned almost 40 percent of their income from opium; a level comparable to their earnings from other licit crops.
The income from opium was mostly used to cover basic needs, such as food or medical expenses. Some farmers also “invested in education, property and improving farming tools.” Only a few farmers said they used their income to invest in alternatives to poppy, the study found.
Small local businesses, such as bakers, butchers and others, tend to profit indirectly from the income generated by opium poppy cultivation given that it provided farmers with increased purchasing power. Nevertheless, UNODC pointed out that “due to its illegal nature, the extent to which the income generated from opium and its products feeds into licit GDP growth is unknown.”
In addition to farmers, opium poppy harvesting (lancing) provides employment opportunities for seasonal workers, who are among the most vulnerable groups facing poverty and food insecurity. In 2016, opium poppy cultivation provided an estimated 235,100 full days of labour jobs. Wages varied depending on supply and demand. According to this Tolo story, during the 2017 harvest in the government-controlled district of Gereshk, in Helmand, an adult labourer could earn as much as 20,000 Afghani, or around 300 USD, for 15 days of lancing. Daily wages for lancing in 2016 (8.4 USD) were more than twice as much as for other non-poppy farm labour (4 USD). Thus, the combined wages for poppy labour in 2016 amounted to an estimated 396 million USD, or 44 percent of the farm-gate value of opium.
The total profit for farmers depends on the costs, which include the daily wages for labourers and insurgency taxation (see also question 4.)
- How much do traffickers earn?
After opium leaves the farm, domestic traffickers and manufacturers – the next stage in the opiate value chain – earned almost two billion USD in 2016. This amount is shared among a lesser number of people when compared with that earned at the farm-gate level. Their profits came through the processing of opium into morphine and/or heroin, and through the trafficking of processed and unprocessed opiates to the borders. (4)
These profits hardly feed into the licit economy and, if they do, they do so to a much lesser extent than the earnings of the farmers and day labourers. “Afghan opium traffickers and processors seem to be more likely to save a substantial proportion of their revenue and spend more on imports – thus using their proceeds in a way which does not create benefits for the licit Afghan economy,” UNODC found. The capital flight of opium money earned by Afghan traffickers includes buying property in other countries.
It is commonly assumed that the onward trafficking of opium derivatives beyond Afghanistan’s borders to end-consumer markets is organised by non-Afghans. If so, then these value added proceeds also are lost to Afghanistan’s economy.
- How much do insurgents profit from the opium-driven economy?
The UNODC study estimated that in 2016 insurgents earned around 160 million USD from taxing opium cultivation, production and trafficking (5). This equates to some 5.4 percent of the total gross value of the Afghan opiate economy (3.02 billion USD in 2016). It included an estimated 48.7 million USD collected from farmers in taxation. In the Western region – Badghis, Farah, Ghor, Herat, Nimroz – as much as 70 percent of village headmen from opium poppy cultivating villages reported paying taxes on their opium sales to “insurgency groups”. In the northern region – Baghlan, Balkh, Bamyan, Faryab, Jawzjan, Sar-e Pul, Samangan – this was around 40 percent. Overall, UNODC concluded that insurgents taxed an estimated 56 percent of the opium harvest. In addition, over 100 million USD were collected from taxing manufacturing and trafficking.
The UNODC estimates roughly match figures provided in the 2016 UN Security Council Sanctions Committee report, which estimated the overall annual income of the Taleban (drugs and other sources) in 2016 at around 400 million USD; half of which, it said, was likely to have been derived from the illicit narcotics economy.
- What linkages are there between gender and opium cultivation?
An earlier UN study in 2000 found that in some regions of Afghanistan women played a fundamental role in the cultivation of opium poppy (Strategic Study #6: The Role of Women in Opium Poppy Cultivation in Afghanistan: Final Report June 2000, United Nations Drugs Control Programme – UNDCP; not available online). In the northern and eastern regions of Afghanistan, respondents told UNDCP (the ‘predecessor’ of UNODC) that they were involved in several stages of the process, including planting, weeding, thinning, lancing and collecting opium, clearing the fields, breaking the capsules and removing the seeds, cleaning the seeds, processing of by-products, such as oil and soap, and preparation of food for hired labourers. “In both regions, there was a general consensus that women provided the bulk of the labour at each stage of opium poppy cultivation, except its harvest,” the report found.
Nevertheless, as in the early 2000s, women today have limited decision-making power over household cropping patterns. The recent UNODC socio-economic study showed that in about two-thirds of all households, women reported that either their husband or a collective of men in the household decided whether opium poppy was cultivated that year, or not. In a smaller proportion of households women did have some say: “In 17 to 21 percent of households, women reported to take the decision together with their husband, in 7 percent it was a collective decision among all men and women, and in 8 to 10 percent of all households the woman was the sole decision maker (most of these women were either widowed or divorced).”
According to UNODC, there was also a relationship between the absence of girls’ and boys’ schools and the presence of opium poppy cultivation in an area. In 66 percent of the poppy-free villages, the headmen reported that there was a girls’ school. Whereas, the same was reported for only 30 percent of villages where poppy was cultivated. For boys’ schools, there was also a marked difference. 90 percent of all villages without poppy cultivation had a boys’ school, compared to only 63 percent of all villages affected by poppy cultivation. The exact nature of the relationship is unclear, but it is likely that the circumstances that allow poppy cultivation are also exactly the same as those that hamper education: greater insecurity, limited rule of law and limited or ineffective government presence.
- What is the real cost of the opium-driven economy?
As alluded to above, the 2016 UNODC survey found a correlation between poppy cultivation, security, access to health care and schools and government presence. When comparing villages affected by opium poppy cultivation with other villages, “it is apparent that opium poppy cultivation is strongly linked to more limited access to infrastructure and services which are essential to the operation of a society, as well as to more broadly defined development indicators, such as security and government control,” UNODC reported. (See also this AAN case study on Badghis province explaining how neglect and remoteness bred insurgency and a poppy boom .)
Opium cultivation, moreover, creates challenges for maintaining agricultural productivity, among other reasons, due to careless land management. For example, unsustainable opium poppy cultivation may have exacerbated environmental issues, such as water scarcity in heavily affected areas (for example, in Helmand). At the same time, water scarcity and climate change may drive more farmers to choose this lucrative cash crop as a livelihood strategy, as it still requires less water to grow than wheat, fruit and vegetables, as highlighted in this report.
Consumption of opiates comes at enormous human cost, not only for the individual drug users, but also their families and, therefore, for society in general. According to the 2015 Afghanistan National Drug Use Survey, between 2.5 and 2.9 million Afghans are believed to use drugs and some 1.5 million Afghans are believed to be regular drug users (see also this AAN analysis).
Millions of Afghans have become dependent on illicit incomes from opiates, as well as its auxiliary products and benefits, for their economic and social survival. According to the Afghan government, an estimated three million Afghans are directly or indirectly connected to the narcotics economy (see the UN Security Council Sanctions Committee 2016 report here). It is evident that the income from opium serves as both a coping mechanism for an increasingly impoverished society, as well as a source of wealth for those who have developed networks of influence and control. While farmers and wage labourers return most of their earnings into the licit economy, the traffickers who earn far more from the illicit proceeds are most likely to take this capital out of the country.
(1) Illicit opiate needs are measured by the global heroin, opium and morphine prevalence rates; the global number of opiate users was estimated as being more than 15 million by UNODC. The opium users, around a quarter of the total number of users, consumed some 1,100 mt of opium in raw form. The rest used heroin and consumed approximately 340 mt of pure heroin per year. This opiate demand, in opium equivalents, was estimated to represent 3,700 mt of opium consumed worldwide, annually. Afghanistan produces around 90% of this need. A word of caution, however, as not everything produced in Afghanistan also leaves the country as there are significant stockpiles.
(2) Farmer used to earn considerably less before the hike in opium prices in 2001. A 2002 UNODC study on the Afghan opium economy pointed out that the average annual gross income of farmers in the period 1994-1999 was close to 1,500 USD per hectare. “It fell to about 1,100 USD in 2000 (and thus close to the revenue from cultivation of legal crops of around 900 USD per hectare).” The average annual income for farmers rose to about 16,000 USD per hectare in 2002 (because of higher prices of opium and as a result of the Taleban ban). The average size of a plot in the opium growing areas at the time was just less than one-third of a hectare generating an annual income of about 4,000 USD for a farmer each harvest, and about 500 USD for a labourer. The farm-gate value between 1994 and 2000 was estimated at about 150 million USD a year.
(3) The UNODC survey was based on 3,538 interviews conducted in March/April 2016. The interviews included 2,121 farmers and 1,417 village headmen in 1,471 villages, both opium growing and non-growing. (For UNODC’s methodology for the village survey see pp81–8 of the report.
(4) Once opiates leave the country, however, their value increases multi-fold as illustrated by an earlier UNODC study:
The progression from profit to greed is usually a function of the appetite for risk-taking. In the late 1990s, profit margins were relatively small in the local opium trade. They increased substantially (up to tenfold) once the borders with neighbouring countries were crossed. They could become considerable (up to 100-fold) when the heroin was trafficked internationally. For example, one gram of heroin in 2002, at about 60% purity, cost $2-$3 in Afghanistan, and approximately $70, at 20% purity, on the street in Western Europe.
In a 2015 study on Afghan opiates trafficked to Western Europe, UNODC estimated the total value of illicit heroin and opium trafficked from Afghanistan, only via the Balkan route, amounted to some 28 billion USD every year. Whereas, as said earlier, the total annual value of the Afghan opiate economy fluctuates between 1.5 and 3 billion USD.
(5) This is how UNODC explains its methodology (pp 87-8 of its report):
To estimate the share of the farm-gate value that is paid in form of taxes to insurgency/others, two key assumptions are made. First, the share of opium poppy villages for which a tax on opium poppy was reported in a region, corresponds to the share of opium production that is taxed. Second, taxes are collected from the farm-gate price of opium as reported in the price monitoring system (which is used as well for calculating the farm-gate value of opium).
With these two assumptions, the share of opium production subject to taxes and, subsequently, the amount of money funding insurgency/others can be calculated. The share of the farm-gate value calculated as tax in a region is the product of the percentage of opium-poppy villages that reported taxes multiplied by the average percentage collected from earnings. To provide an example, in the Eastern region 40 percent of village headmen reported that taxes are paid, and the average amount collected was 6 percent. Thus, 2.5 percent of the farm-gate value funds non-state authorities. (…)
Under the assumption that the results from the village survey can be transferred to the whole value chain of opiate production in Afghanistan, 5.4 percent of the value of the opiate economy, which amounts to US$ 3.02 billion in 2016, were earned by insurgency and other groupings in 2016, yielding US$ 164 million of taxes alone (including the income from the farm-gate value).
To answer this question with greater precision, more information on the control of processing and trafficking of opiates, distribution practices and taxes collected from these activities would be needed.