Tuesday, June 24, 2008

Profits and Poppies?

Economically, it's difficult to understand why opium crops are so substantial in Afghanistan. The classical explanation would be that it's the most profitable use of that land and of those farmers' time. But, there's some research, summarized by The Economist, suggests that ain't so.
Recent research suggests that greed on the part of farmers, at least in
this part of the country, is actually a fairly minor factor in the
decision to plant poppy.
David Mansfield, a researcher for the Afghan Research and Evaluation
Unit, a think-tank, has produced statistics showing that Nangarhar
poppy farmers are rarely the richest people in their communities. Their
profits from poppy are often barely higher, and sometimes lower, than
those from legal crops, particularly where they have to use petrol
generators to pump water to their crops.
So what gives? One clue is that illegal smugglers might be the only ones filling a hole in the capital market and provision of public goods (adequate transport).

Smugglers would visit farms to buy opium. They made loans against
future production ahead of the planting season. Dry opium keeps for up
to two years, so farmers can save it as capital and sell when the
market looks favourable.
Hmmm. Interesting...Basically smugglers are making contracts with farmers for future delivery (futures markets), and the storability of poppy helps make up for the risk involved with poor roads and the inability to get your crop to morket before spoiling.

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