There was an overwhelming consensus amongst respondents that a shortage of adequate alternative income earning opportunities and increasing demographic pressures had compelled them to begin trading in opium. There was also a general agreement in both the eastern and southern regions that currently trading in opium offered higher profit margins than trading in other commodities such as livestock or agricultural goods. However, fieldwork also revealed significant differences between the structure of the opium trade in the eastern and southern regions that may assist in furthering our understanding of the process of centralisation that has occurred in the illicit drug trade in other countries.

Indeed, data on prices collected over the previous 12 months would tend to support the claim that there are distinct market structures in the eastern and southern region (see Table 1 and 2). Whilst it is recognised that there is a need to use a longer time series to be more conclusive, the trends in opium prices over the last 12 months tend to follow the pattern of a typical annual agricultural crop with opium prices reaching their lowest price during the harvest period and rising during those months following and preceding the harvest period. However, in the east prices do not seem to follow the same trend, fluctuating widely with no distinguishable pattern. It is possible that the absence of a trend similar to that experienced in the south may be a consequence of the process of centralisation that dominates the opium trade in the eastern region.

6.1. Centralisation in the east
All the farmgate traders interviewed in Shinwar indicated that they did not tend to buy opium from households within the district. It was suggested by respondents that the proximity of the inhabitants of Shinwar district to Ghani Khel meant that opium producing households were fully aware of the current price of opium and faced few logistical constraints in transporting their opium to the market. Consequently, most opium producing households sold their crop directly to any one of approximately forty shopkeepers in Ghani Khel bazaar who specialise in the buying and selling of opium.

The great majority of respondents in Shinwar indicated that the focus of their trade was in the outlying districts of Mohmand Dara, Khogiani and Rodat. The provinces of Kunar and Laghman were also popular locations for buying opium for farmgate traders from Shinwar district. The rationale for trading in these outlying districts and provinces was that prices were lower than in Ghani Khel.

Respondents indicated that their proximity to Ghani Khel gave them a distinct advantage over opium producing households and traders in the outlying districts and provinces. All respondents in both Shinwar and Achin and key informants indicated that Ghani Khel is the centre of opium trading in eastern Afghanistan. Consequently, major traders often visit the bazaar to purchase large quantities of opium for processing into morphine base or heroin. These purchases can consist of as much as ten metric tons of opium during one visit, resulting in local shortages in the bazaar and substantial increases in the price of opium.

Respondents and key informants indicated that the price of opium in Ghani Khel bazaar was determined by the demand for opium from these large traders, suggesting that when the processing and smuggling of opium and its derivatives is constrained by law enforcement activities there was a corresponding fall in the price of opium in Ghani Khel bazaar.

Farmgate opium traders in Shinwar reported that the fluctuating price in opium acts as an incentive for them to travel to outlying areas where the inhabitants are, either not fully aware of any increase in the price of opium in Ghani Khel bazaar, or, are unwilling to travel to Ghani Khel due to travel costs rendering the sale of small amounts of opium unprofitable. In Achin farmgate traders reported that they purchased opium in the more remote areas of the district for precisely the same reasons, selling the opium in either Ghani Khel or Kahi, the district centre, and formerly the centre of opium trading in eastern Afghanistan.

All the respondents indicated that there were no restrictions on their mobility and they could purchase opium from any individual in any village or district without fear of intimidation or threats from other traders, or the local authorities. Price and quality were the only determining factors when purchasing opium. For instance, one trader reported purchasing a total of 8 seer or 10 kg of opium from five different farmers in Lagliman for $34.40 per kg in mid-June. Each kg was sold the next day for $43.20 in Ghani Khel bazaar. The trader estimated that the costs he incurred were purely transport related and amounted to approximately $3.00. Indeed, the majority of respondents indicated that the mark-up on this type of rapid-turnover trade were between $3.00 to $9.00 per kg.

Respondents recognised that opium prices reach their highest during the period from October until April when there is a shortage of opium to be sold. Prices during this period can rise to over twice the level of the previous harvest price. The majority of respondents recognised that they should hold onto their opium and trade later in the year when prices were at their highest. However, few reported that they retained their opium for long periods of time as they were compelled to sell quickly due to cash flow problems.

Whilst Ghani Khel represents the regional centre of opium trading in eastern Afghanistan, key informants and respondents reported that there are also a number of district bazaars that operate as centres for a more localised trade. In Achin it was possible to interview a number of shopkeepers that traded opium from their general stores.

These shopkeepers indicated that they operated with very low overheads with both buyers and sellers trading opium with them on the shop premises. Whilst respondents indicated that in the rural bazaars in Achin shopkeepers colluded to fix the price of opium, advances were unique, arranged between the shopkeeper and individual household. One shopkeeper reported providing the equivalent of $3,260 in advances during the period from October until April 1997/98.

The shopkeepers interviewed indicated that they were not representatives of the larger traders operating out of Ghani Khel bazaar but acted independently. However, they did report that they had ongoing business relationships with specific traders in Ghani Khel. These relationships tended to have developed over a number of years and involved bulk purchases and the provision of loans to begin trading. For instance, one shopkeeper claimed under such an arrangement, a trader in Ghani Khel bazaar, who had provided the initial funds for him to diversify into opium trading, traveled to Achin each month to purchase opium from him in 60 kg loads. The maximum amount of opium this intermediary trader reported selling to Ghani Khel on any one occasion was 125 kg.

Key informants report that the dominant market position that Ghani Khel has secured within the opium trade in the east has led to many of the bazaars in the regions acting as tributaries, channeling local purchases of opium to Ghani Khel. Consequently, it is argued by key informants that the type of patron-client relationship that exists between large traders in Ghani Khel and smaller traders in Achin is not atypical for the region.

6.2. Decentralisation in the south
Interviews in the south revealed that, as opposed to the eastern region, opium prices vary very little from district to district. Typically the faringate price across the southern region for the highest quality opium ranged from $60.30 to $62.20 per kilogram, whilst the poorest quality, opium, was being bought at the faringate for the equivalent of $44.00 per kg. The best quality dry opium was being bought for $82.50 per kg, almost twice that of Ghani Khel.

The relatively high price of opium in the south was explained in terms of both significant reductions in the yield of opium poppy in the southern region in 1998 and the opening of the northern borders to trade, following the taliban's recent victories. Indeed, prior to fieldwork opium prices increased dramatically in the south from $32.00 per kg in May to between $60.20 and $63.20 per kg in August, twice that of the August price in 1997. However, as opposed to the mark-up reported in the east, the majority of traders interviewed in the south suggested that they earned only $1.20 to $3.20 per kg on the buying and selling of wet opium post-harvest.

Although respondents in the south were willing to travel further afield if prices were found to be particularly low, the nominal difference in the price of opium between areas resulted in a largely localised trade. Indeed the bulk of faringate purchases were in the district in which respondents lived or those neighbouring it. Further purchases required to satisfy bulk orders by cross-border traders were made at any one the numerous bazaars in the southern region. During the fieldwork it was possible to witness the mobility of trade between the numerous bazaars in the region through discussions with visiting traders.

Indeed, interviews revealed that in the southern region there are a number of bazaars where opium is purchased directly by traders from Pakistan, Iran and, less so frequently, the Central Asian Republics. Each of these bazaars has a number of shops which specialise in opium trading. However, during the harvest season it was reported that most of the shops trading in other goods diversify into small-scale opium trading.

Respondents indicated that Sangin had the largest number of specialist opium traders with around 200 shops in the bazaar selling only opium. There was also general agreement that Sangin has a higher turnover of opium than any other bazaar in the south, followed by Musa Qala. District bazaars in KaJaki, Nowzad and Maiwand were considered significantly smaller than Sangin and Musa Qala both in terms of turnover and numbers of specialist traders. Nevertheless, respondents and key informants reported that cross-border traders from Iran and Pakistan frequently visited these smaller bazaars to purchase opium directly.

Respondents in the south indicated that the trade in opium is competitive at all levels but not aggressively so. Indeed, where transactions were considered mutually beneficial traders are reported to cooperate on a inter and intra district basis. A number of examples of large shipments of opium consisting of contributions from numerous traders in the bazaar were cited by those interviewed. For instance, it was reported by a number of respondents that a group of traders had experienced financial problems as a result of a continuing delay in the payment for a large shipment of opium by Baloch traders. To both assist in resolving their financial problem and to incur the final benefits of the deal, a number of traders from Musa Qala agreed to pay the Sangin traders an amount equal to the value of the opium at the time that it was sold.

Yet, there were reports that intense competition between some of the major traders in the southern region had resulted in violence with attacks on caravans of opium by rival traders. However, it was suggested that such incidents were rare and on the whole the trade within southern Afghanistan was peaceful.

• The structure of the opium trade differs markedly between the eastern and southern regions. It would certainly appear that the process of centralisation in the east has led to short term price differentials with the lowest farmgate prices occurring in those areas located the furthest distance from the dominant opium market in the eastern region, Ghani Khel. These price differentials appear to have created a class of short term, speculative farmgate traders that during the opium harvest exploit their proximity to Ghani Khel to travel to outlying districts and provinces where the inhabitants are either not fully aware of any increase in the price of opium, or, are unwilling to travel to Ghani Khel due to travel costs rendering the sale of small amounts of opium unprofitable.
  
• The geographic location of Ghani Khel, would appear to be a determining factor in the dominance of Ghani Khel in the opium trade in the eastern region. Ghani Khel is located centrally, both logistically within the eastern region, and politically within the Shinwari tribe. Indeed, key informants report that prior to the war and Ghani Khel's dominance, Kahi bazaar in Achin district was the centre of the opium trade in the eastern region. The significance of Kahi was a consequence of its central location in the loya woliswoli, or greater district, of Shinwar, consisting of Deh Bala, Achin, Nazian, Durbaba and Shinwar, all traditional opium growing districts. The regional centre for the greater district of Shinwar was in Ghani Khel, where a significant government presence was maintained. Within the greater Shinwar district, Kahi retained a degree of autonomy from the authorities, allowing the opium trade to exist without interference. With the conflict in Afghanistan and the breakdown in the rule of law and civil administration, the regional centre for the opium trade appears to have shifted to Ghani Khel. Moreover, when viewed within the context of the expansion to the north in the area cultivating opium poppy, it would appear that Ghani Khel is better placed both geographically and logistically than Kahi due to its proximity to the asphalt road.
  
• The influx of large traders to Ghani Khel, purchasing significant amounts of opium for processing within Afghanistan would appear to consolidate the centralisation process in the east. The commission system operating in Ghani Khel also strengthens the bazaars central role in the eastern opium trade, providing the necessary incentive to ensure that those purchasing opium trade and store their opium in Ghani Khel. As such the commission system ensures a steady supply of opium is maintained in Ghani Khel bazaar to meet the demands of large traders.
  
• In the south, the presence of numerous buyers and sellers have led to a more decentralised and ?free' market structure. Opium prices would appear to vary little between districts and provinces. Consequently there is little economic advantage in traveling between regions. The evidence of a low mark-up on opium in the southern region is supported by the high incidence of mixing of the different qualities of opium, the addition of adulterants, and the increasing evidence of farmgate traders transporting opium to the southern and eastern borders. All this would tend to suggest that where possible opium traders, like traders in any business are continually pursuing strategies to increase the returns on their trade and offset the losses that they are incurring. Moreover, reports suggest that prior to the war Musa Qala played a central role in the opium trade in the southern region. However, insecurity in the area due to conflict within the mujahiddin movement prompted traders to relocate their operations to Sangin. With improved security and the demise of the factionalism of the commanders, Musa Qala has once gain emerged as an important opium bazaar in the southern region. However, in the south a number of other bazaars have also developed direct links with Baloch traders from both Pakistan and Iran, resulting in a more decentralised market structure.
  
• The opium trade in the eastern region shows evidence of vertical integration on the basis of tribe rather than a well organised formal institutional structure. Traditionally the cross border trade has been associated with particular tribal groups that span Afghanistan's borders with its neighbours in the south and east. In the south, numerous Baloch tribes are reported to be heavily involved in the cross-border trade in opium, whilst Pashtoon tribes have traditionally focused on opium poppy cultivation and the trade within Afghanistan. In the east, Shinwari Pashtoons have not only traditionally cultivated and traded opium, but through their links with Afridi Pashtoons on the other side of the border, have developed a virtual monopoly on the processing and final transportation of heroin into Pakistan. Whilst the sheer number of Baloch tribes in the cross border trade has facilitated a process of decentralisation, with numerous bazaars emerging as important international markets for opium within the southern region.
  
• The growing incidence of heroin processing within eastern Afghanistan is also reported to have exacerbated the process of centralisation in the eastern region. Respondents and key informants indicate that heroin processing requires access to the ?right people' with either the knowledge of the production process, or the influence to ensure processing and trading could be undertaken without restriction. In the eastern region, it is the Shinwari that have developed these links through their contacts across the borders. In the southern region, processing would appear to be limited, largely restricted to morphine base in the far south and far south east of the country and under the control of Baloch traders. Seizure records from Iran would tend to support the prevalence of the trade in opium in the south. For instance, between 1990 and 1997 there has been a considerable increase in the amounts of opium seized by the Iranian authorities, increasing from 20.8 mt in 1990 to 162.4 mt in 1997. Whilst morphine base has continued to increase from 4.5 mt to 19.0 mt between 1990 and 1997, seizures of heroin have remained relatively stable during the same period at approximately 2 mt per annum.
  
• The opium trade in Afghanistan would appear to be integral to the livelihood strategies of a variety of different stakeholders, not just opium cultivators.Fieldwork suggests that farmgate opium traders, like opium cultivators, are hetrogenous, ranging from owner cultivators who use any surplus income they may have to engage in short term, speculative trading during the harvest period, to large scale specialist opium traders who purchase opium throughout the year and adopt a variety of strategies aimed at increasing their profit margins, including providing advance payments, mixing, and transporting dried opium to the border areas.
  
• The proportion of large traders interviewed who had performed Haj, and their claim that they believed the trade in opium to be un-Islamic, would suggest that economic needs and motivations are given priority over religious strictures. Indeed, fieldwork suggests that opium traders often have a number of sources of income but believe these to be insufficient to satisfy their needs and those of their families. Whilst those trading in larger amounts of opium over the full year are found to be relatively wealthier than most Afghans, high household dependency ratios continue to constrain improvement in family living conditions. Moreover, diminishing landholdings and the scarcity of viable legal employment opportunities for family members has created a dependency on the opium trade. Whilst there is an obvious need to develop advocacy initiatives aimed at increasing the social and religious stigma associated with the cultivation and trade in opium, it would appear that these will not be sufficient to influence individuals in their decision to abandon opium as a source of livelihood. Wider economic growth and social and political stability are essential pre-conditions to eliminating opium cultivation and trading in Afghanistan.
  
• The profit derived from the trade in opium does not appear to be substantial in absolute terms. Indeed, in the east the mark-up on the rapid turnover trade, where traders were found to purchase and sell opium quickly to take advantage of local price differentials, was found to range between $3.00 and $9.00 per kg. In the southern region the mark-up on this type of trade was even less at the equivalent of only $1.20 to $3.20 per kg. However, according to respondents the profit margins of the opium trade are attractive in relation to the alternative sources of income currently available in Afghanistan, particularly to individuals who have received an intermediate education.
  
• Whilst there would appear to be opportunities to increase the profit margins significantly through the provision of salaam, all those interviewed had adopted a cautious approach to providing advance payments on opium.Indeed, traders recognised that profits could be significantly increased by providing advance payments for opium prior to the harvest. In the east, the mark-up on opium bought via salaam was between $21.80 to $55.20 per kg compared to $41.30 to $49.50 in the southern region. However, the high risk nature of this approach due to crop failure, fluctuating prices, and debtors absconding, led traders to adopt a more cautious approach, where advances are only given to a limited number of ?trusted' individuals.
  
• Whilst individuals would appear to be relatively free to enter the opium trade, constrained only by surplus cash flow, trust would appear to be an important feature of business relationships. The uncertain socio-economic and political environment of Afghanistan combined with the illicit nature of the trade, expose traders to significant risk. Deception regarding the quality of opium and payment of debts, combined with volatile prices and exchange rates have resulted in all traders experiencing losses both during the initial years of trading and throughout their trading careers. Consequently, traders would appear to prefer to trade with those people that they have purchased opium from before. However, whilst working with trusted individuals is preferential, opium traders are willing to travel to new areas and conduct business with strangers if it is profitable enough.
  
• It is important to note that whilst all the traders interviewed associated an economic risk with trading in opium, few perceived any threat of arrest or punishment by the local authorities. Indeed, in the east and south respondents indicated that improvements in the security situation over the last few years had reduced the incidence of robbery and the amount of taxes opium traders traditionally had to pay under the mujahiddin. Moreover, in the east, the improved security situation would appear to have led to an expansion in the number of individuals exploiting their privileged geographical position to enter into speculative, short term, opium trading.
  
• Whilst the trade in opium in Afghanistan would appear to be competitive it is on the whole peaceful. Individual opium traders are found to vary prices according to prevailing supply and demand. The small profit margins on the post-harvest trade result in traders seeking to maximise the amount of opium they buy and sell through commissioned trade and cooperative arrangements with other traders. Reports of violence and intimidation in either the eastern or southern region are rare.
  
• It is interesting to note that there are different qualities of opium in Afghanistan and that traders have developed mechanisms for identifying the quality that is being purchased. The different quality of opium and its concomitant impact on price would suggest that there may be greater chance of achieving sustainable reductions in opium cultivation in areas irrigated by canals and rivers rather than those irrigated by karez. The reason for this assessment is not purely the availability of water and thereby the potential for the introduction of alternative cropping systems but also the competitiveness of alternative crops compared to the relatively low value of opium produced in these areas.

ANNEX A: TERMS OF REFERENCE

Strategic Study 2: The Dynamics of Farmgate Opium Trade and the Coping Strategies of Opium Traders

Objective: To further UNDCP's understanding of the market structure of the farmgate trade in opium and identify the possible responses of traders to a reduction in the supply of opium.

Summary: This study will consist of a number of semi-structured interviews with farmgate opium traders in the target districts. Particular attention will be given to the market structure of the farmgate opium trade, including the degree of competition, profit margins, profile of sellers (pre and post harvest) and intra- and inter-provincial mobility. The strategies traders envisage undertaking in response to UNDCP's Afghanistan Programme will also be explored.

Methodology: This study seeks to follow-up on a number of interviews conducted by the Drug Monitoring & Evaluation Specialist with opium traders in Khakrez in 1997. Due to the sensitivities associated with interviewing opium traders and the problems of access, emphasis will be given to conducting a limited number of in-depth semi structured interviews. However, in order to verify findings and distinguish between generic patterns and localised issues, in-depth interviews will be conducted over a wide geographical area. This Study will be undertaken in close consultation with ?Strategic Study 2: The Role of Opium as a Source of Informal Credit and the Feasibility of Alternative Options'.

UNDCP programme staff and in particular the C28 Community Mobilisers will act as key entry points to farmgate opium traders. The fieldwork will be undertaken over a four week period focusing on the target districts of C28, including Khakrez, Ghorak, Maiwand and Shinwar. If security conditions permits interviews with wholesale traders in Ghani Khel and Sangin will also be undertaken.

Interviews will focus on a number of key issues discussed in a conversational manner. Notes will not be taken during the interview but written up once the interview has finished and the interviewer has departed.

�

KEY ISSUES TO BE DISCUSSED

Motivation
i.��� What prompted the trader to begin buying and selling opium?
ii.��� How many years has he been trading in opium?
iii.��� Does the trader have other sources of income other than opium?
iv.��� Are there any restrictions for an individual wishing to start buying and selling opium? Examples?
v.��� Has the trader ever considered trading in other products?

Profits
vi.��� What price did the trader buy opium for at harvest time?
vii.��� What price did the trader sell opium bought at harvest time?
viii.��� How are these prices determined?
ix.��� Are there differences in prices for opium between districts and provinces?
x.��� If so why? ie Quality of opium?
xi.��� What was the average yield of opium per jerib in his area?
xii.��� What conditions produce the best quality opium?
xiii.��� What amounts of opium does the trader buy sell (a) each month (b) and over one year?
xiv.��� What type of financial costs does the trader incur in his work? ie tax, transportation?
xv.��� How much are these costs over a one month period?
xvi.��� Does the trader offer advances?
xvii.��� What rate does he offer?
xviii.��� In what form is the debt repaid?
xix.��� What happened if the farmer cannot repay this year?

Mobility
xx.��� In which districts/provinces does the trader buy his opium?
xxi.��� How many other traders does he think are operating within his geographical area?
xxii.��� Where does the trader sell his opium?
xxiii.��� Has the trader considered traveling to further districts/provinces to buy and sell opium?
xxiv.��� If not, why not?
xxv.��� What risks does the trader face in his work? Arrest? Robbery? Violence from other traders

Duration
xxvi.��� Does the trader purchase opium throughout the year?
xxvii.��� If so, what are the differences between those farmers who sell (a) in advance, (b) wet opium at harvest, (c) and dry opium towards the end of the year?

Coping strategies
xxviii.��� Will the trader find another source of trade if the taliban ban the cultivation and trade of opium?
xxix.��� If not, what will the trader do to stay in business?
xxx.��� What is the trader's perception of UNDCP?

�

MAPS AND TABLES

	Illustrative Diagram of the Opium Trade in the Eastern Region (Click on picture to enlarge)
Illustrative Diagram of the Opium Trade in the Southern Region (Click on picture to enlarge)
	Table showing the price of opium per kilogramme in Ghani Khel (Click on table to enlarge)
Table showing the price of opium per kilogramme in Qandahar (Click on table to enlarge)