Impact of Narcotics on Colombia’s Economy
By: Sasthaa Gingee Babu, Takyeon Kwon
Research Head: Shreya Kasibhatla
Editor: Akshat Daga
Illustration by KJ Shakti
Abstract In this paper, we will analyse the South American economy of Colombia and look at the impacts that the narcotics industry, with an emphasis on cocaine, has had on the economy. We will talk about the impact on the exports and imports of the country, talk about the measures taken by the government and conclude with how the affected citizens, the farmers, feel about this.
1. The current state of narcotics in Colombia Currently, Colombia produces about 70% of the world’s nose powder (The Economist, 2019). From the graph below, we can see that cocaine cultivation is as high as it has ever been. *Cultivation of cocaine over the years in Colombia*
Narcotics have played an immense role in the lives of many of the farmers. The reasons for the prevalence and importance are quite clear: lack of proper infrastructure, geographical positioning and a lack of alternative crops to produce have all contributed to increasing the popularity and convenience of producing cocaine. The government has also done little to incentivise farmers out of this field. Working with the United Nations Office on Drugs and Crime, the government of Colombia tried to step in by paying the farmers as much as 1 million Pesos (roughly amounts to $300) a month to grow anything else. The flaw that surfaced in a later stage was that out of the 99,000 families that signed up, over 41,000 had not received a single payment (The Economist, 2019).
2. Impact of Drugs on Colombia’s Exports and Imports The year that the peace treaty between the Colombian government and Revolutionary Armed Forces of Colombia—People's Army (FARC) was signed, was also characterised by the country's exports reaching a record low.
*Graph highlighting the trend of exports in over the decade*
The country’s exports dropped from $35.6 billion to $31 billion when it transitioned from 2015 to 2016. This can mainly be attributed to the drop in oil price by 21.7%, the primary export product. (Alsema, 2017).
The cause for the decline in exports and the price of oil was because of national strikes that were led by the drivers and transporters. Their demands were not met by the then President, Duque, which caused the strikes to escalate so much that parts of the nation were at a standstill. The workers were being harassed by the Cartels and the FARC to illicitly transport drugs in their drugs. They went to the government to seek help but nothing could be done in time.
Even the imports suffered a great deal. The depreciation of the currency because of the previously mentioned reasons, caused imports to drop to very low rates as can be seen from the above graph.
3. Why Does Narcotics Have Such a High Importance in Colombia? There are many reasons as to why narcotics influence the Colombian economy so significantly. The first reason is low development of infrastructure. The poor infrastructure of Colombia is highlighted by the World Economic Forum (WEF) Global Competitiveness Report 2013-2014. WEF (n. d.) ranked the quality of overall infrastructure of Colombia 92nd out of 148 countries. Compared to other crops which need well-constructed infrastructures to be transported, narcotics can easily be transported. The Economist (2019) said ‘a hectare-worth of coca leaves can be easily processed as a paste which can easily be transported with a backpack’. Furthermore, cocaine is a non-perishable product. The second reason is the geopolitical location of Colombia. Though Colombia itself produces a huge amount of coca-leaf, its neighbouring countries like Peru also occupy a considerable part in the supply of narcotics. Thoumi (1992) said Colombia is located between the US and the countries producing coca-leaf such as Bolivia and Peru, thus functions like a route of narcotics trade. The third reason is the profitability of producing narcotics including Cocaine. Lopez (2014) estimated the value of Cannabis and Cocaine to be USD $47,000,000 and USD $37,700,000 respectively (per km2). However, the value of other legal crops was extremely smaller. Under such circumstances, it is a natural choice for the farmers seeking profit maximization to produce narcotics.
In addition, Rementeria (2017) stated the agricultural subsidy which distorts the market price drives the local farmers of Colombia to grow narcotics. Due to many countries subsidising their agricultural industry, many farmers in Colombia need to face the competition against cheap imports, when they produce legal crops. For the local and small farmers, it is impossible to survive in the competition. 4. The efforts to combat narcotics The traditional approach to handle narcotics issues was the eradication strategy, which targets the supply of narcotics by forcing the producers to stop producing it. This strategy has its long history which started in 1920s (Bigwood and Coffin, 2005).
Since president Nixon declared war on drugs in 1971, this strategy has been frequently used to combat supply of narcotics. Even now, there are a lot of people asserting its effectiveness (Cobb and Acosta, 2020).
However, since the policy was implemented, people argue the ineffectiveness of the eradication policy and change in the approach towards the narcotics issue. For instance, McCathy (2019) said the cocaine production in Colombia peaked in 2017.
Source: UNODC World Drug Report Following the increase in production, the retail price of narcotics such as cocaine is being cheaper as time passes (Isacson, 2019).
The graph indicates cocaine is more accessible in the US, which implies the increase in its consumption. The two indicators above indicate the failure of eradication strategy, which also means the need for a new approach.
A new approach is to provide the local farmers who used to produce coca leaves with incentives such as subsidies to produce legal crops.
As previously mentioned, the reason why most local farmers produce narcotics is its profitability while other legal crops are likely to create a loss. Hence, eradication strategy just makes it harder for the farmers to grow narcotics but cannot cover the fundamental reason narcotics is being produced, which is for farmers to make their living. Therefore, by the incentive which allows the farmers to have other ways of making their living instead of growing narcotics, the supply of cocaine and other narcotics can be restricted. This approach is being supported by journalistic articles and studies. For instance, Jenkin (2014) said ‘According to UNODC figures, alternative development programmes have resulted in Thailand being opium free since 1993. Laos and Myanmar have also reduced opium production’. However, despite the effectiveness of the incentive approach, it is doubtful whether this approach can be successful or not.
First, the budget of the government is limited. The Economist (2019) said especially in a developing country like Colombia, it is unlikely that the government can provide the farmers with subsidies over a long time. Taking into account the profitability of coca farming, once the subsidies run out, the farmers would like to return to coca production which they used to.
Furthermore, even with the subsidy, the farmers make less profits than they used to, owing to the huge profitability of coca farming. Moreover, the cheap imports from other countries contribute to further lowering the profitability of farmers. Otis (2018) said the imports from neighbouring countries such as Ecuador have driven the prices of legal crops down. In addition, as previously mentioned, the subsidized food of the developed nations even more distorts the market price of agricultural products (Rementeria, 2017). 5. Conclusion Narcotics hold a huge importance to Colombian economy. As stated before, Colombia produces 70% of the world's supply of cocaine. This is just taking into account one of the many narcotic substances that is present. The narcotics have adversely affected the country's exports and imports in the past. The heavy influence of narcotics results from a range of factors which include geographical reason, poor infrastructure of Colombia, the cheap import, and the profitability of narcotics. Unfortunately, the two strategies, eradication and incentive strategies both have negative aspects which add difficulties in Colombia’s efforts to address its narcotics issue.
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