The Illegal Drug Industry in Latin America: The Coca-Cocaine Commodity Value Chain

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In this article we will analyze the way in which the coca-cocaine industry has been organized recently, indicating how the changes in its organization have affected the functioning of the industry at the various phases of production and trafficking. Drug production and trafficking present a powerful challenge to Latin American development and it is our understanding that development in the last few decades cannot be well understood without bringing the illegal drug industry into the picture.

The small-scale production of coca in the Andean countries did not develop into the "cocaine business" until the mid-1970s. The industry began to boom by the early 1980s, showing spectacular growth in a context of increasing economic crisis and a state that had been losing legitimacy, failing to meet many of its core responsibilities. The rise of cocaine production and trafficking has been an intricate part of this development. Coca growing and cocaine production appeared to be well adapted to the conditions of the underdeveloped rural economy in the Andean countries. Coca appeared to be an ideal crop, guaranteeing a steady flow of income, softening the impact of the crisis for sizable numbers of the peasant population. Soon, however, it also appeared that the industry's illegality was greatly affecting the market structure and the strategies of the partners involved -producers, sellers and consumers- turning violence into a resource whose real or potential use has become an almost "normal" element of market competition. The enormous money interests at the various phases of production and trade have led the entrepreneurs involved to defend market positions at all costs.

Within two decades, coca growing has expanded from the relatively small areas where it was cultivated for traditional consumption to regions covering large parts of Bolivia, Peru and Colombia. Expansion in the near future into Ecuador, Venezuela, Brazil and Guyana is not unthinkable. In addition, a growing number of countries have become involved in trafficking and money laundering. The mushroom-type growth of the industry and the effects on the socioeconomic and political fabric of society in these countries are conditioned by (a) the structure and functioning of the legal economy and the ways of conducting business (the prevalence of a "get quick rich" mentality); (b) the structure of society, its exclusionary nature, and the access to social mobility promoting mechanisms; (c) the structure of power and politics, political culture, the role of clientelist structures and the legitimacy of official rule. In combination these elements shed light on the why and how of the rise of the drug industry, its persistent presence in producer countries, and the (non)effectiveness of the various methods of control. They also explain the growing gap between legality and socially acceptable behavior, which has opened the door to widespread corruption and an explosive growth of criminal and non criminal underground economies (Thoumi, 1995).

In the areas of production and trade, the drug industry has developed interesting parallels with the dynamics of legal international trade under the influence of increasing globalization and economic integration. In legal as well as in illegal trade, one tries to develop markets at home and overseas, to create market advantage and downstream control, to modernize logistics, to practice technological and product innovation (heroin, crack), and to intervene in the political process in producer and trafficking countries on the basis of accumulated economic power. The coca-cocaine chain ties the production and trafficking activities in the source countries and the Northern countries together with money laundering as its lubricant. Originally the chain counted a number of separated phases: coca growing, paste and base production, cocaine production, wholesaling, exporting, warehousing in Northern countries, regional distribution, retailing, street level dealing. …