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A Reduction in Supply? Analyzing Recent Cocaine Price Trends

By InSight. U.S. anti-drug officials often claim that government policies have limited the supply of cocaine in the country and caused the street price of the drug to rise. However, long-term price trends for cocaine suggest that precisely the opposite may be true.

Speaking at a January forum on border security at the University of Texas in El Paso, Homeland Security Secretary Janet Napolitano praised recent U.S. counter-narcotics efforts. The official claimed that recent border security initiatives are making significant progress against drug trafficking, and called the Obama administration’s efforts “the most serious and sustained action to secure our border in our nation’s history.”

Secretary Napolitano’s optimism is not unfounded, as an increase in security at the border has had a measurable effect on the amount of drugs seized on their way into the U.S. According to a recent Department of Homeland Security (DHS) report seen by the AFP, border officials seized 87 percent more cocaine in fiscal year 2010 than in the previous year.

Still, seizure statistics alone cannot indicate whether the overall flow of cocaine into the U.S. has been significantly impacted. To measure this, drug enforcement officers track the retail price and purity of cocaine powder, on the assumption that jumps in prices and decreases in purity both result from crackdowns limiting the supply.

When drug traffickers are under pressure from authorities, the theory goes, the street price of cocaine will be higher, and drug sales will be less pure, cut with other substances in order to stretch the limited supply.

According to the National Defense Intelligence College’s (NDIC) 2010 Drug Threat Assessment, the retail price of cocaine has increased significantly since 2006, accompanied by a decrease in the purity of the drug (see graph below). As the data shows, from January 2007 through September 2009, the U.S. price of a gram of cocaine increased 75.4 percent, from $99.24 to $174.03, while the purity decreased 31.5 percent, from 67 to 46 percent.

While these findings might seem to back claims that anti-drug efforts have resulted in significant cocaine supply lows in the United States, there are a number of problems with the NDIC dataset. For one thing, the data used in the report is based on the System to Retrieve Information from Drug Evidence (STRIDE) database, a catalogue of cocaine samples seized by law enforcement agencies sent to the Drug Enforcement Agency (DEA) for analysis. As the DEA notes on its website, “STRIDE is not a representative sample of drugs available in the United States, but reflects all evidence submitted to DEA laboratories for analysis, from both domestic and foreign sources.” Because of this, the STRIDE data cannot be used to conclusively reflect national market trends.

On top of this, the NDIC’s emphasis on recent price spikes is misleading, as the overall trend of cocaine prices in the U.S. in recent decades has been overwhelmingly down, not up. According to a drug policy report commissioned by the White House in 2008 and released publicly in 2009, the inflation-adjusted price of cocaine has plummeted since its commercial introduction to the U.S. in the early 1980s.

The report, conducted by the Institute for Defense Analyses (IDA), also uses STRIDE data, but controls for strong outliers and uses only samples collected inside the U.S.

As a graph compiled by the report’s authors indicates (see below), the average U.S. retail price of one pure gram in 2007 was in fact the lowest figure on record. Although the graph shows that the bulk price of cocaine is slightly higher in 2007, the overall downward price-trend is unmistakable. Perhaps the most noteworthy finding in the report is that the average price of cocaine in late 2007 was nearly 20 percent lower than in late 1999, the year before the U.S. began funding the massive anti-drug strategy known as Plan Colombia.

Additionally, although the IDA researchers note a slight decrease in purity beginning 2006, they say that 2007 expected purity estimates for each amount category were between “5 and 15 percent higher than their 2001 counterparts,” suggesting that the recent decline in purity is only part of a more long-term spike. As the graph below indicates, although purity of cocaine has varied over the years, it cannot be said to have conclusively dropped.

As the IDA report shows, any assessment of cocaine price and purity data requires an understanding of its historical fluctuation. As with any market, there are bound to be ups and downs in the supply of cocaine, but while these temporary reductions may be caused by U.S. counternarcotics efforts, the overall trend does not support claims of a recent unprecedented reduction in domestic cocaine supply.

Ultimately, U.S. drug policy may be more effective if it abandons attempts to decrease the size of the market for drugs and focuses more on reducing societal problems associated with drug production. This argument is furthered in a 2010 analysis of counter-narcotics policy by the Washington Office on Latin America (WOLA), whose authors claim that U.S. drug policies have disproportionately hurt small farmers in the region, while members of drug-trafficking organizations generally have the political capital to avoid the negative impact of crackdowns. To change this pattern, they suggest that a greater emphasis should be placed on economic development alternatives for coca growers, along with increased spending on education and treatment in the U.S.

Read more: http://www.insightcrime.org/insight-latest-news/item/817-a-reduction-in-supply-analyzing-recent-cocaine-price-trends

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