In 2014, it cost a Nike about $16 to make a pair of Air Jordan sneakers in China. That year, the average retail cost ranged from $250 all the way up to $550. Transportation, packaging, marketing, advertising, taxes and other costs factored into a mark-up of up to 3,300 percent. Cocaine economics – narconomics, if you will – behave in much the same way.
From humble plant to megaprofit
According to the UNODC’s 2015 report on coca cultivation in Columbia (2014), the country increased its hectare production by 23 percent in 2014. In a standard supply and demand economic scenario, as supply increases, demand decreases and prices go down. But narconomics does not follow this pattern for the simple reason the cartels control the supply. A surfeit of fresh coca leaf does not affect the price of a gram of cocaine in the States because the cartels set the price.
The United Nations Office on Drugs and Crime (UNODC) notes Columbian coca farmers receive $1.30 for every kilogram of coca leaf. Between 450 and 600 kilograms are required to produce 1 kilogram of cocaine base. A kilogram of cocaine goes for over $2,000 in the jungles and interior of Columbia. The price doubles, even triples, as the drug makes its way toward the port. In northern Mexican towns along the U.S. border, the average price for a kilogram of cocaine is $16,000. The same cocaine will be sold in the U.S. between $24,000 and $27,000. From there dealers peddle the drug for $100 to $150 a gram, depending on location.
Adapting to a changing market
Drug interdiction efforts have made an impact on the amount of cocaine and other drugs coming into the U.S. As a way to circumvent surveillance, the cartels now take circuitous routes to get their product to market. Joaquin Guzman, known as El Chapo, built a tunnel from Mexico to the U. S. When the tunnel was discovered, Guzman opened a chili pepper cannery in Guadalajara. Workers filled chili pepper cans with cocaine.
Regardless of how the drugs reach the States or Europe, the cartels – particularly the Sinaloa Cartel – turn a huge profit. In 2012, the RAND Corporation estimated the cartels boasted revenues of over $6 billion, with the Sinaloa Cartel pocketing about $3 billion. Now, with the cocaine market drying up, the cartels have switched to smuggling heroin – and to fentanyl, which does not require a crop to produce.
Narconomics on a macro and micro scale
Macroeconomics looks at the big economic picture; microeconomics examines the impact of single events on the economy. Narconomics is a hybrid of macro and microeconomics. With respect to the former, it is a safe bet the cartels are not concerned with interest rates, increased or decreased productivity in the U.S., savings or investments. They are concerned with consumption – one of the standard benchmarks for macroeconomics. It is the only benchmark the cartels need concern themselves with. As former Mexican President Ernesto Zedillo noted in a recent article, the U.S. comprises 5 percent of the global population but represents 25 percent of the global demand for illicit drugs.
As for microeconomics? Cartels are not democracies. Guzman escaped from a Mexican prison – via a tunnel, naturally – and was on the run for months before being apprehended. It is not known if he still exercises control over the Sinaloa Cartel or if someone has stepped in to fill the vacuum. What is not in doubt is the fact that Guzman was the undisputed leader of the cartel. His decisions – often carried out with brutal and bloody efficiency – determined how the cartel operated, how much cocaine it exported and how much it charged per kilogram.
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About the author
Darren Fraser is a content writer for Sovereign Health. He worked two and half years as reporter and researcher for The Yomiuri Shimbun until they realized he did not read, speak or write Japanese and fired him. Undeterred, he channels his love of research into unearthing stories that provide hope to those dealing with addiction and mental illness. Darren loves the Montreal Canadiens hockey club and horror films and would prefer to enjoy these from the comforts of his family’s farm in Quebec. For more information about this media, contact the author at firstname.lastname@example.org.