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By Antonio Maria Costa
Opium is a commodity -- an illegal commodity, but it should still be subject to the normal rules of supply and demand.
Annual demand for opium is approximately 4,500 tons. Last year a record 6,100 tons were produced in Afghanistan alone. That country's production is 30 percent more than total world demand. Heroin prices should, in theory, be plummeting. But they are not. So what is going on?
Does opium defy the laws of economics? Historically, no. In 2001, prices surged tenfold from 2000, to a record high, after the Taliban all but eliminated opium poppy cultivation across the Afghan territory under its control. So why, with last year's bumper crop, is the opposite not occurring? Early estimates suggest that opium cultivation is likely to increase again this year. That should be an added incentive to sell.
Are farmers stockpiling the drug? Unlikely. Opium, unlike coc aine, has a long shelf life and can be stored as a form of saving, a source of liquidity and as collateral for credit. But why would poor farmers sit on more than $1 billion worth of stock when they are struggling to make ends meet and common sense suggests that prices could easily fall?
An alternative hypothesis is that new heroin markets may be emerging somewhere we do not yet know about, perhaps in Asia. But if new markets were absorbing a 1,500-ton surplus, we would expect an increase in seizures of the drug and overdoses in these countries. That hasn't been happening.
So where is it? I fear there may be a more sinister explanation for why the bottom has not fallen out of the opium market: Major traffickers are withholding significant amounts.