shantibaba
Breeder and moderator
Economist.com
Jun 26th 2007
FOR decades business has been booming. Over the years rival operators have found ways to lift production, they have devised inventive supply chains that reach across the globe and have expanded markets so that they supply loyal consumers in almost every country. Estimates are hard to confirm, not least because enterprises have been reluctant to open their accounts to public scrutiny, but the industry was thought to claim global annual sales of some $320 billion in 2005 (tax free). And although some better-known trade bodies (the Medellin and Cali cocaine cartels, for example) have been forced to close shop, largely as a result of tough state regulation, the industry as a whole remains in rude health.
But are the heady days coming to an end? A UN report released on Tuesday June 26th suggests that prospects for expansion in parts of the industry are dim. Although 5% of adults are thought to have taken illicit drugs of some sort over the past year, the use of softer brands such as cannabis and amphetamines has apparently reached a peak. In America, for example, cannabis use was highest in 1979 when more than 16% of the general population took it. By 2005 that had declined to just 10.4% of the population.
As troubling for the industry, many consumers in the extremely important American market are turning up their noses at cocaine. By 2005 cocaine use in America was down to 2.3% of the general population, more than 50% lower than the rate two decades ago. Compounding woes in that sector producers of coca (the raw material for cocaine) have seen cultivation decline in recent years. At its peak in 2000 some 221,300 hectares were under coca cultivation in Latin America. Last year that had dropped to just 159,600 hectares.
Stagnant growth in these sectors is troubling for the industry. As great a concern, however, may be logistics. The supply chain is coming under greater scrutiny from regulators who wield powers that are the envy of watchdogs in other industries. Fiercer regulation by law-enforcement agencies and, increasingly, by armies and navies, is deterring some producers and sellers, for example those coca-growers in Latin America.
The UN report suggests that, globally, seizures of cocaine and heroin have leapt since 1999. In some quarters, programmes to persuade impoverished farmers to switch to legal crops have curbed supplies of raw materials.
One part of the industry, however, seems to be blossoming as never before. The heroin sector is enjoying a consumer boom in many countries, coinciding with record production in Afghanistan. In 2006 the global output of opium which is used to make heroin, the hardest of drugs, reached an all-time-high, with producers in Afghanistan dominating the market (see chart). In the 1980s the country produced just 30% of the world’s opium supply, but it has since—despite years of war—boosted output significantly and now accounts for 92% of world supply. A single province, Helmand, is said to have 70,000 hectares of opium under cultivation. In Afghanistan, at least, efforts to persuade farmers to turn to legal but less profitable crops have had no effect whatsoever.
But heroin producers and traders aside, enterprises within the illegal industry may now seek alternative ways to keep profits up. If the drugs business is indeed slowing, then the gangs, such as the Mafia, may have to compete more fiercely, perhaps engaging in hostile takeovers. Crime bosses battling for a bigger share of a slow-growing market is likely to mean much blood on the carpet. An alternative approach could be to diversify, with enterprises using their talents and infrastructure to peddle other forms of contraband such as cigarettes, pharmaceutical drugs, endangered animals, or human slaves. The UN report suggests such diversification is already underway.
The smartest entrepreneurs, however, may seek a way out of the illegal industry all together. Despite those profits, it is a tough world in which to operate. Asserting property rights is often a question of gaining and maintaining a reputation for the utmost brutality. Secrecy restricts the pool from which bosses can draw the kind of talented and pitiless managers they need. As for the consumers, quality control and service is in the hands of suppliers of dubious merit. Now the opportunities for growth—heroin aside—seem limited in the industry.To counter the problems, crime gangs now seem a lot more decentralised than in the past says to the report. Perhaps this is the shift in management style that will help them to survive.
Ref: http://www.economist.com/business/displaystory.cfm?story_id=9394616
Jun 26th 2007
FOR decades business has been booming. Over the years rival operators have found ways to lift production, they have devised inventive supply chains that reach across the globe and have expanded markets so that they supply loyal consumers in almost every country. Estimates are hard to confirm, not least because enterprises have been reluctant to open their accounts to public scrutiny, but the industry was thought to claim global annual sales of some $320 billion in 2005 (tax free). And although some better-known trade bodies (the Medellin and Cali cocaine cartels, for example) have been forced to close shop, largely as a result of tough state regulation, the industry as a whole remains in rude health.
But are the heady days coming to an end? A UN report released on Tuesday June 26th suggests that prospects for expansion in parts of the industry are dim. Although 5% of adults are thought to have taken illicit drugs of some sort over the past year, the use of softer brands such as cannabis and amphetamines has apparently reached a peak. In America, for example, cannabis use was highest in 1979 when more than 16% of the general population took it. By 2005 that had declined to just 10.4% of the population.
As troubling for the industry, many consumers in the extremely important American market are turning up their noses at cocaine. By 2005 cocaine use in America was down to 2.3% of the general population, more than 50% lower than the rate two decades ago. Compounding woes in that sector producers of coca (the raw material for cocaine) have seen cultivation decline in recent years. At its peak in 2000 some 221,300 hectares were under coca cultivation in Latin America. Last year that had dropped to just 159,600 hectares.
Stagnant growth in these sectors is troubling for the industry. As great a concern, however, may be logistics. The supply chain is coming under greater scrutiny from regulators who wield powers that are the envy of watchdogs in other industries. Fiercer regulation by law-enforcement agencies and, increasingly, by armies and navies, is deterring some producers and sellers, for example those coca-growers in Latin America.
The UN report suggests that, globally, seizures of cocaine and heroin have leapt since 1999. In some quarters, programmes to persuade impoverished farmers to switch to legal crops have curbed supplies of raw materials.
One part of the industry, however, seems to be blossoming as never before. The heroin sector is enjoying a consumer boom in many countries, coinciding with record production in Afghanistan. In 2006 the global output of opium which is used to make heroin, the hardest of drugs, reached an all-time-high, with producers in Afghanistan dominating the market (see chart). In the 1980s the country produced just 30% of the world’s opium supply, but it has since—despite years of war—boosted output significantly and now accounts for 92% of world supply. A single province, Helmand, is said to have 70,000 hectares of opium under cultivation. In Afghanistan, at least, efforts to persuade farmers to turn to legal but less profitable crops have had no effect whatsoever.
But heroin producers and traders aside, enterprises within the illegal industry may now seek alternative ways to keep profits up. If the drugs business is indeed slowing, then the gangs, such as the Mafia, may have to compete more fiercely, perhaps engaging in hostile takeovers. Crime bosses battling for a bigger share of a slow-growing market is likely to mean much blood on the carpet. An alternative approach could be to diversify, with enterprises using their talents and infrastructure to peddle other forms of contraband such as cigarettes, pharmaceutical drugs, endangered animals, or human slaves. The UN report suggests such diversification is already underway.
The smartest entrepreneurs, however, may seek a way out of the illegal industry all together. Despite those profits, it is a tough world in which to operate. Asserting property rights is often a question of gaining and maintaining a reputation for the utmost brutality. Secrecy restricts the pool from which bosses can draw the kind of talented and pitiless managers they need. As for the consumers, quality control and service is in the hands of suppliers of dubious merit. Now the opportunities for growth—heroin aside—seem limited in the industry.To counter the problems, crime gangs now seem a lot more decentralised than in the past says to the report. Perhaps this is the shift in management style that will help them to survive.
Ref: http://www.economist.com/business/displaystory.cfm?story_id=9394616