Monday, 6 March 2017

Cocaine makes a comeback in the U.S.

The Washington Post reports:
While much of the recent attention on drug abuse in the United States has focused on the heroin and opioid epidemic, cocaine has also been making a comeback. It appears to be a case of supply driving demand.
After years of falling output, the size of Colombia’s illegal coca crop has exploded since 2013, and the boom is starting to appear on U.S. streets...
Given that we are covering supply and demand in ECON100 at the moment, this seems like an appropriate time to look at what is happening here. There has been an increase in the supply of cocaine (a shift to the right, or down, of the supply curve for cocaine), as shown in the diagram below, from S0 to S1. This lowers the equilibrium price of cocaine (from P0 to P1), and increases the quantity sold and consumed (from Q0 to Q1). In other words, since cocaine is now cheaper, more people use it (rather than more expensive substitutes such as heroin or opioids).

Why has supply increased? The Washington Post article explains:
The State Department report cites four major reasons for the sudden coca-growing binge by Colombian farmers.
The first is that FARC rebels appear to have encouraged farmers in areas under their control to plant as much coca as possible in preparation for the end of the war, “purportedly motivated by the belief that the Colombian government’s post-peace accord investment and subsidies will focus on regions with the greatest quantities of coca,” the report said.
At the same time, the government reduced eradication in those areas “to lower the risk of armed conflict” and create a favorable climate for the final peace settlement.
The Colombian government also ended aerial spraying with herbicides in favor of manual eradication. But when eradication brigades have arrived to tear out illegal crops, local farmers have blocked roads and found other ways to thwart the removal, including the placement of improvised explosive devices among the coca bushes.
The final factor is the Colombian government’s financial squeeze, “resulting in a 90 percent reduction in the number of manual eradicators in 2016 as compared to 2008,” according to the report.
Notice how all of the four factors listed above either lead to a greater supply of the crop getting to market, or lower the costs of supplying cocaine. Both of which leads to an increase in supply. However, it's likely that the change in price shown in the diagram above is somewhat exaggerated, in the reverse of the effect explained by Tom Wainwright in his excellent book, Narconomics (see my post here for details).

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