Narco supply chain of Latina America

Being a student of Supply Chain, I always study the interesting developments in logistics and transportation sectors all over the world. Latin America collectively is the largest producer and supplier of legal and illegal narcotics to North America and Europe. Most important being, Cocaine; consumed in every country on earth, but virtually every speck of it starts its life in one of three countries in South America: Bolivia, Colombia, and Peru.

In United States, a gram of pure cocaine today costs about $180. (A typical gram bought on the street costs about half that, because it is only about 50 percent pure.) The process of converting coca leaves to cocaine powder is continually evolving as the cocineros, or “cooks,” develop new recipes in their clandestine jungle laboratories. A team of scientists from the United Nations and the Colombian government made a startling discovery. Following nearly a year of fieldwork between 2005 and 2006, they determined that there had been something of a green revolution in the cocaine business. Whereas previously they had assumed that one hectare of land in Colombia would enable the production of about 4.7 kilograms of pure cocaine powder a year, they now came back with revised estimates indicating that a hectare could in fact yield more like 7.7 kilograms. It meant that cocaine manufacturers in Colombia had developed a way of making 60 percent more cocaine from their coca than had previously been thought possible.

The process of converting coca leaves to cocaine powder is continually evolving as the cocineros, or “cooks,” develop new recipes in their clandestine jungle laboratories. It is usually done in two steps. The first is to convert the coca leaves to a damp, cream-colored paste known as cocaine base. To do this, one ton of fresh leaves is dried out until it weighs more like 300 kilograms. The dried leaves are then chopped up into smaller pieces and mixed with a toxic brew of chemicals, including cement, fertilizer, and gasoline, which coaxes the cocaine out of the waxy leaves. The remaining plant matter is then filtered out, the chemicals removed (at least, most of them), and the remaining residue boiled down. The result is about a kilogram of cocaine base. To turn this paste into cocaine hydrochloride, as snortable cocaine powder is formally known, it is mixed with a solvent such as acetone, and with hydrochloric acid. The resulting mixture is filtered and dried to derive just under a kilogram of pure cocaine. That basic process has been carried out for decades. But recently the cartels’ research and development engineers have struck gold. The process has changed dramatically. They are using new chemical precursors, and new machinery.

Some of the innovations are basic: rather than waste time drying leaves out in the sun, farmers cook them in ovens; chopping the dried leaves up into smaller pieces is now frequently done with the aid of a gasoline-powered hedge trimmer, which whizzes them up into tiny fragments in no time. To wring the cocaine out of the coca leaves more quickly, cartels have started using adapted washing machines as primitive centrifuges. Sometimes these laboratories are installed in the backs of trucks that constantly trundle around the back roads of the jungle, to avoid detection. All of this, and the use of new precursor chemicals, has meant that in three years, cocaine yields in Bolivia have doubled. This means that the country’s role in the supply chain has also changed. Rather than sending coca paste to Colombia to be processed into cocaine, Bolivians are increasingly doing the refining themselves, before sending it over the border into neighboring Brazil for onward shipment to Europe and for local consumption. (Brazil is now the world’s second-biggest market for cocaine, after the United States, and the biggest bar none for crack.) Taking control of this part of the supply chain has enriched Bolivian traffickers, because international smuggling is where many of the profits are found in the cocaine business. According to the United Nations, the amount of land devoted to growing coca in South America fell by about one-quarter between 1990 and 2011. But, thanks to more efficient production processes, the amount of cocaine made using that smaller amount of land increased by one-third.

Look at the evolution of the price of a kilogram of the drug, as it makes its way from the Andes to Los Angeles. To make that much cocaine, one needs somewhere in the neighborhood of 350 kilograms of dried coca leaves. Based on price data from Colombia obtained by Gallego and Rico, that would cost about $385. Once this is converted into a kilo of cocaine, it can sell in Colombia for $800. According to the published figures, that same kilo is worth $2,200 by the time it is exported from Colombia, and it has climbed to $14,500 by the time it is imported to the United States. After being transferred to a mid-level dealer, its price climbs to $19,500. Finally, it is sold by street-level dealers for $78,000. Even these soaring figures do not quite get across the scale of the markups involved in the cocaine business. At each of these stages, the drug is diluted, as traffickers and dealers “cut” the drug with other substances, to make it go further. Take this into account, and the price of a pure kilogram of cocaine at the retail end is in fact about $122,000.

The difference between the “farm gate” price of coca and the final retail price of cocaine—an increase of more than 30,000 percent—has an important implication for attempts to raise the price of coca leaf. Gerhard Richter, whose canvases sell for up to $46 million, would not lose sleep if the price of the oil paints used in his works of art doubled, or even quintupled. And in the same way, as long as counternarcotics agencies focus their fire on the earliest, lowest-value stages in the cocaine supply chain, the drug cartels need not worry too much about their bottom lines.


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