A WAR ON DRUGS, OR A WAR ON FARMERS?

Two days after his inauguration as Afghanistan's first popularly elected
president, Hamid Karzai gave an impassioned speech to officials and
community leaders from all over the country. The drug trade, he said, posed
a greater threat to Afghanistan than the Soviet invasion, civil war, or
foreign interference. Yet while the Karzai government is determined to
eliminate narcotics, it is resisting U.S. pressure for a massive crop
eradication effort. As the chancellor of Kabul University, former finance
minister Ashraf Ghani, recently wrote, "Today, many Afghans believe that it
is not drugs , but an ill-conceived war on drugs that threatens their
economy and nascent democracy."

Last November, after a still-unidentified aircraft sprayed herbicide on
opium poppy (and everything else, including children) in villages of
eastern Afghanistan, President Karzai called in the ambassadors of the U.S.
and U.K. to protest. Both countries denied involvement. Since then, under
pressure from Mr. Karzai, U.S. allies, and the U.S. military, the
administration is considering reallocating the $152 million already
programmed for aerial eradication. That would be a change in the right
direction, if the administration adds these funds to the $120 million it
had allocated to alternative livelihoods for rural communities, a mere 15%
of a total program of $778 million.

The administration's program not only has lopsided priorities; it is a
threat to U.S. objectives and the stability of Afghanistan. It focuses
resources on the wrong end of the value chain, the raw material. The
program's "five pillars" (eradication, interdiction, law enforcement,
alternative livelihoods, and public information) contain no provision for
macro-economic support as part of a plan to wipe out the largest sector of
one of the poorest economies. Eradication, the largest part of the program
(38%) attacks farmers who voted for President Karzai and sometimes provide
intelligence to U.S. forces. Eradication would take place while the country
tries to carry out parliamentary and provincial elections.

It is hard to find Afghans who support this strategy, but we have found one
group that does: drug traffickers. Strangely enough for a Republican
administration, the administration's anti-drug policy tries to use force
against the profit motive, rather than use the profit motive to support
policy. The result is the enrichment of traffickers, warlords and
terrorists at the expense of poor farmers.

The Afghan opium economy involves three groups: poor farmers, who use cash
from opium futures contracts to feed their families over the winter;
landowners and traders, who rent land and provide loans against the future
harvest; and protectors, including officials, warlords and terror groups,
who oversee the trade and export. In the latter two groups are major
smugglers and officials. The latter group, not farmers, threatens Afghanistan.

Final demand for this addictive product varies little with price. But the
demand by middlemen is highly elastic, as opiates, raw or refined, have a
shelf-life of years. From his discussions with farmers in Eastern
Afghanistan, one of the authors (Zakhilwal) found that poor farmers have
sold off their stocks to buy necessities, while those with adequate wealth
have hoarded half of the 2004 harvest and about 30% from 2003. Mid-level
traders have stored 80% of the 2004 opium for resale at higher prices.

Traders welcomed U.S. calls for crop eradication. After three massive
harvests, prices had fallen from $600 to $90 per kilo, but after
announcement of eradication they jumped to $400. Prices settled back to
$300 for current sales, but futures prices went to $400 for delivery in two
months and $500 for three months. Traders are confident that by April 2005
the price will reach $1,000 per kilo. Then they will sell. The higher price
will signal that it is profitable to grow opium in remote areas with lower
yields, leading to the migration, not elimination, of the crop, as in the
Andes.

Sustained efforts against those high on the value chain, however, would be
far more effective. Destruction of laboratories and stocks, and disruption
of wholesale markets would lead to panic sell-offs, lowering prices and
exposing product to interdiction. It would also lower the price paid to
farmers, sending the right market signal for next year's planting.

But while interdiction, not eradication, is therefore the right focus for
law enforcement, it too will backfire without actual -- not just promised
- -- economic development. Rural communities need alternatives to the credit,
employment and cash incomes that opium provides. U.S. and Afghan officials
have launched development efforts in opium-growing provinces, but many are
on the margin of survival. They cannot shift their economic activities
based on tiny handouts or vague promises.

Some of the poor in rural communities have migrated to Pakistan, saying
they cannot survive in Afghanistan without opium. An attack on the farmers'
livelihoods will lead some to flee and others to fight. It will then be too
late for either the government or international aid providers to enter
their villages to promote alternative livelihoods.

The narcotics industry now equals 60% of legal economic activity. It
produces the country's main export. Without macroeconomic support to
sustain effective demand and the balance of payments, the currency will
crash, prices will soar, and the urban population will suffer along with
the rural communities. Such conditions would be as unpropitious for
stabilizing the country as the entrenchment of the narco-economy.

Counter-narcotics must start by helping those whose political support the
government and the U.S. need. This requires far more aid to rural
communities and a program of support to effective demand and the balance of
payments. Law enforcement should attack the real enemies of our effort at
the top of the drug trade. This will send the right market and political
signals. Using force against the interest of our allies and the laws of the
market risks undoing the good we have done.