Counter-Narcotics in Afghanistan VI: Alternative Livelihoods or Development?

This is the sixth of a series of posts in which I analyze the main aspects of counter-narcotics policy in Afghanistan, in response to the recently published U.S. Counter-Narcotics Strategy for Afghanistan and the UNODC Afghanistan Opium Survey 2007.

The previous installments were: Counter-Narcotics in Afghanistan (First Installment): Defining the Problem; Counter-Narcotics in Afghanistan II: The Value Chain, The Corruption Chain; Counter-Narcotics in Afghanistan III: The False Promise of Crop Eradication; Counter-Narcotics in Afghanistan IV: Beyond Interdiction; and Counter-Narcotics in Afghanistan V: Is Opium Poppy Cultivation Related to Poverty? I also presented a general memorandum on counter-narcotics strategy: Points on Counter-Narcotics in Afghanistan: A Critique and a Proposal

As argued in the previous installments, the U.S. (which funds most counter-narcotics activity in Afghanistan) has invested a disproportionate amount of resources in eradication of the opium poppy crop, which contributes only about 20 percent of the value of the opiate industry in Afghanistan. Antonio Maria Costa, executive director of the United Nations Office on Drugs and Crime, characterized last year's eradication effort as "a farce." The result of failed eradication programs has been the migration of cultivation, its concentration in insecure areas, an increase in the value of the opium economy, and closer links among farmers, traffickers, corrupt officials, and the Taliban. The opium economy in Afghanistan has spread and become more integrated not in spite of, but because of counter-narcotics efforts.

In the new U.S. Counter Narcotics Strategy, of the five immediate priorities, three are for eradication: make eradication a counter narcotics priority; encourage (i.e. pressure) the Afghan government to set eradication goals, and; encourage (i.e. pressure) the government of Afghanistan to use non–negotiated eradication (mechanical eradication and spraying). The two other goals are improving the fund for rewarding provinces (more precisely, governors of provinces) that are “good performers,” with lower cultivation being the only measure of performance, and an improved public information strategy, an area where this administration has proved itself uniquely inept. While the report contains sections on alternative livelihoods and interdiction, neither is listed among the immediate priorities.

The U.S. justifies the emphasis on eradication by citing a UNODC finding that “poppy cultivation is no longer linked to poverty.” The previous post shows that this conclusion is based on fallacious analysis of flawed data. Dependence on poppy cultivation remains linked to poverty according to the World Bank and independent analysts. Hence World Bank economist William Byrd argues that rural development programs will be critical to create alternative livelihoods for poor farmers: “The country also needs to develop labor intensive agriculture exports of high-value added which really will be the alternative to opium. But it has to be recognized that this will take time.”

Recognizing that "this will take time" would mean planning for a transition from the drug economy to a fully licit economy. This is a massive macro-economic development task, not a law enforcement task to be supplemented with some economic incentives and sanctions. I will now outline the components of that task. To recognize that "this will take time" means planning for a transition from the drug economy to a largely licit economy.

Alternative to What?

The basic idea of "alternative livelihoods" is sound: participation in the narcotics industry fulfills economic and social needs whose satisfaction is otherwise difficult under current circumstances; those engaging in these activities need legitimate alternatives. Designers of "alternative livelihood" programs, however, often misunderstand and underestimate the functions of the narcotics industry. The U.S. Counternarcotics Strategy is the first document from Washington that shows significant undertanding of the functions of the drug economy, but in its rush to produce instant results it ignores the implications of the facts it recognizes.

The Strategy avoids the most elemental error: confusing alternative livelihoods with "crop substitution," as expressed in the common question, "what other crop can they grow?" Consistent with the flawed oversimplifed view of "poverty" in the UNODC report, this question assumes that the sole non-criminal beneficiaries of the opium economy are "farmers" (presumably cultivating their own land with mostly family labor); that the main reason "farmers" grow poppy is to increase their income; and that there are no economic functions of the drug economy outside of cultivation.

All of these assumptions are wrong. Opium is not a crop but an industry. The ludicrous statement made by UNODC and echoed by the U.S. that "only" 14 percent (a mere one seventh!) of the Afghan population is directly involved in opium cultivation, ignores the facts, also documented by UNODC and the World Bank, that "cultivation" generates only 20% of the value of the opiates produced in Afghanistan; that a very large number of people are directly involved in the sectors of the opium economy other than cultivation; and that many people gain their livelihoods from activities generated indirectly by demand created by the opium economy in, for instance, construction and trade.

The reduction in poppy cultivation in Nangarhar province in 2004-2005 provided a test of the macro-economic impact of the drug economy. David Mansfield's research revealed that it is substantial:

[T]he ban imposed by the provincial authorities had a wide-reaching impact extending well beyond opium poppy farmers, affecting a variety of different socio-economic groups. Estimates suggest that rural labourers who had no land of their own but who had previously been employed during the weeding and harvesting seasons for opium poppy lost as much as US$ 1,000 in off-farm income due to the ban. Businessmen and shopkeepers in the provincial and district bazaars saw their turnover halve due to the significant shortfall in purchasing power that the ban imposed on the rural population. And unskilled daily wage labourers in Jalalabad city experienced a reduction in the number of days they were hired as well as in daily wage rates.

The most significant impact was borne by opium poppy cultivating households themselves. However, even for them the impact of the ban was less punitive in areas with better access to resources. For instance, while households with access to larger and well-irrigated landholdings experienced more substantial falls in on-farm income due to the ban, their proximity to the agricultural commodity markets of Jalalabad allowed them to offset some of these losses by increasing cultivation of other high-value crops. Those with a stock of assets also drew on the different sources of legal income that they had access to in the provincial centre and, where possible, increased the number of household members allocated to daily wage labour opportunities. While even in this relatively resource-wealthy group losses were significant — expenditure on basic food items were curbed to make ends meet — neither longer-term productive assets, such as livestock and land, nor investments in licit income streams were sold off in response to the imposition of the 2005 opium ban in Nangarhar.

In contrast, those households most dependent on opium poppy and who typically cultivated it most intensively were found to adopt coping strategies in response to the ban that not only highlighted their growing vulnerability but threatened their long-term capacity to move out of illicit drug crop cultivation. The loss in on-farm income that this group experienced was not offset even in part by an increase in cultivation of high-value licit crops. This was due to constraints on irrigated land, the distance to markets, and the increasing control “local officials” had gained over the trade in licit goods. Instead, these households replaced opium poppy with wheat. However, due to land shortages and the density of population wheat production was typically insufficient even to meet the household’s basic food requirements. The loss in off-farm income during the opium poppy weeding and harvesting seasons (up to five months’ employment) could not be replaced by intermittent wage labour opportunities paid at less than half the daily rate offered during the opium poppy harvest the previous year.

For this group, problems in accessing new loans were compounded by inability to pay accumulated debts. As a result, expenditures on basic food items were reduced; children were withdrawn from higher education; and livestock, household items, and prior investments in licit income streams were sold. The resource-poor were more likely than the resource-wealthy to send members of their family to find employment in Pakistan, and were typically the most vociferous in their opposition to the government for its imposition of the ban and to the foreign countries they believed to be behind it. The impact of the ban on opium poppy cultivation on some households was so substantial that even in households that included only one male of working age, he would travel in search of wage labour opportunities, leaving the women and children without an adult male relative present in the household compound.

This real-life experiment (performed on human subjects who were not informed of the risk or offered the option of not participating) shows what was lost when cultivation was suppressed.

There are several conclusions:

• Poppy cultivation is not a choice of crop that requires another crop to substitute for lost income; it is a component of complex livelihood strategies of extended families. These strategies include labor migration, education, seeking wage labor, and serving in armed groups (not mentioned in the text). This multi-dimensional function of poppy cultivation is the reason for the use of the term alternative "livelihood" rather than "crop." Advocates of eradication claim that since no other crop produces the same gross income, eradication is necessary to force farmers to adopt other crops. Mansfield shows that eliminating cultivation before investing in assets needed for production actually deprives poor farmers of the capacity to adopt other crops and economic activities. Rural families do not need just another "crop"; they need access to opportunities and assets that enable them to support themselves without poppy cultivation. These opportunities can come in forms other than "crops." Secure employment is the most reliable "alternative livelihood."
  

• Poppy does not give access only to income, but to credit, land, water, food security, extension service, and insurance. As the Afghan public sector, both national and local ,was destroyed in war over the past decades, private and sometimes criminal groups undertook the provision of public goods, including collective violence for "security," in order to create conditions for their activities. Of course when public goods are provided by private for-profit organizations without legal oversight, the provision is flawed (as the example of private security contractors in Iraq and Afghanistan shows). The opium industry privatized the provision of essential support services to the agricultural sector, as its rate of profit and global size made it the only industry with the resources and incentives to supply such public goods.

• The fact that one seventh of the population of Afghanistan is directly involved in opium poppy cultivation does not show that it is a marginal activity. On the contrary, it signals a social revolution. For the first time in history, a substantial portion of the Afghan rural population is involved in the production of a cash crop for the global market. Never having come under direct colonial rule, and being distant and isolated from global markets over the past several centuries (as sea trade dominated long-distance land trade), Afghanistan's people never experienced the commercial penetration of their society as did those of colonized countries. The country never produced tea, coffee, sugar, indigo, rubber, copper, diamonds, gold, oil, jute, or any of the other commodities whose cultivation on plantations or extraction from mines led to new forms of labor control and migration, followed by social and political upheavals. Only Afghanistan's recent comparative advantage in the production of illegality and insecurity enabled it to join the global market by producing illicit crops. Nowhere in history have rural people abandoned commercial farming to return to subsistence agriculture without being subjected to massive violence. Regardless of the ethical implications, the degree of violence required to drive the Afghan peasantry back to subsistence farming is consistent with no known political objective of the international community or even the Bush administration (though such an attempt by the international backers of the Afghan government would help the Taliban and al-Qaida). Hence the economic alternatives to the opium economy must include, as the World Bank's William Byrd stated, the creation of "labor intensive agriculture exports of high-value added," not a return to subsistence farming. This was the purpose of the creation of projects such as Gulestan and Arghand. It is also what the Interim Afghanistan National Development Strategy (chapter 5) calls for:

  The ideal type of agricultural activity for Afghanistan is labor-intensive production of high-value horticultural crops that can be processed and packaged into durable high-value, low volume commodities whose quality and cost would be adequate for sale in Afghan cities or export to regional or world markets.

  When USAID started ALP in 2004, however, their initial package consisted of donations of wheat seed and fertilizer, much of which the farmers immediately sold to pay off their opium debts.

• The public goods and effective demand created by the opium industry in this predominantly rural and agricultural country have become central to macroeconomic stability. This is not the case in drug producing countries where cultivation involves a negligible part of the economy and a marginalized part of the population. Even in Colombia, the value of narcotics production is estimated at only 3 percent of the GDP. In Afghanistan around a third of the economy and probably around a third of the population depends economically to a significant degree on the opium economy. Drug production affects the balance of payments, tax revenues (through imports), the rate of exchange, employment, retail turnover, and construction, not just farm income. The broad scope of the effects of the drug economy in Afghanistan led the current U.S. Strategy to refer to "alternative development," rather than "alternative livelihoods." As with other improvements in analysis and terminology in this report, however, the Strategy fails to draw the logical conclusions: that counter-narcotics in Afghanistan requires a macroeconomic and political strategy over a period of decades, not a quick-fix based on accelerated eradication before that development policy is even formulated.
  

• Because drugs are not marginal, and changes in production and trafficking have significant macro-economic impact, counter-narcotics policy has national political impact. Production and trafficking of narcotics constitutes a response to insecurity and marginalization, which are national, not regional or local phenomena. There is virtually no area of Afghanistan except some urban areas where law enforcement can prevent growing opium poppy. It is an option for anyone. The investment by the Thai government in the economic and social integration of opium-producing hill tribes in remote areas on the Burmese border had no effect on the national political arena, as it was insignificant compared to the government budget or GDP, and the rest of Thailand was under effective government control. According to U.S. claims, however, the yearly amount of aid now aimed at Helmand province (even if much of it never arrives in any perceptible form) is equal to over half the domestic revenue of the Afghan government, or 3 percent of GDP. Therefore alternative livelihood programs directed to regions in proportion to their volume of opium production produce perverse results: they become incentives to production of opium elsewhere. In the fall of 2004, a Momand elder from Nangarhar told me that his tribe had concluded that the only way to get foreign assistance was to grow opium poppy. Just as eradication spreads poppy cultivation to new insecure areas with lower yields or a higher cost of eradication by raising the price, alternative livelihoods directed at opium cultivating areas spread cultivation by acting as an incentive, raising the expected returns to poppy cultivation. The current strategy responds to this with a program of incentives for "good performers." Recognizing the problem is a positive step. (When I argued in December 2004 that "alternative livelihood" aid should also be given to provinces that did not grow opium, one of the highest officials in charge of U.S. Afghanistan policy told me I was not living in the "real world." By 2006 opium poppy was grown in every province of Afghanistan for the first time.) Those on the ground are skeptical (to say the least) that rewarding governors will have any sustainable effect on the economic decisions in the drug economy.
  

Therefore alternative development for counter-narcotics must start from macro-economic plans to create employment by linking Afghanistan to the licit international market, especially through rural industries based on agricultural products. Since elimination of the narcotics sector risks causing a significant economic contraction of one of the poorest and best armed countries in the world (situated in proximity to al-Qaida's new base area, Pakistan's nuclear weapons, and Iran's nuclear program), planning for elimination of narcotics must start from a macro-economic plan to assure stability and overall growth.

The 2004 study Securing Afghanistan's Future, prepared under the direction of then Finance Ashraf Ghani proposed such a basic framework, though much more work was required. SAF estimated that the elimination of the narcotics economy in fifteen years without compromising a modest rise in standards of living would require a minimum real growth rate of 9% per year in the licit economy. The growth rate alone would not cushion the shock sufficiently, as the losses from eliminating narcotics might not occur in the same locations and social groups as the new growth; therefore sectoral anbd redistributive policies would also be needed. The I-ANDS also referred to this target, but there has been no further work on the integration of counter-narcotics into macroeconomic planning. Instead the development component has been limited to small-scale rural development, often delivered in strikingly wasteful and ineffective ways.

Sectoral policies might have to address particular commodities. As Ashraf Ghani has noted, cotton (the original cash crop produced in the irrigated areas of Helmand) is not competitive with opium poppy as long as U.S. and EU producers drive down the price by dumping subsidized cotton on the international market. Estimates of the price impact of these subsidies vary. Total U.S. cotton subsidies total over $3 billion yearly, more than total U.S. development aid to Afghanistan.

If the U.S. and EU subsidies cannot be eliminated, because the political support of cotton farmers is more important than winning the struggle with the Taliban and al-Qaida, subsidies could be provided in Afghanistan. In meetings with counter-narcotics officials, Helmand farmers have asked for government cotton subsidies as an incentive to shift from poppy to cotton, but unlike U.S. farmers, whose political contributions count, Helmand farmers do not qualify for exemptions from the discipline of the "free" market. Even if cotton alone is not competitive, Ghani has suggested that t-shirts would be competitive. Establishing textile quotas for Afghanistan and investing in simple garment factories in Afghan cotton-producing areas could increase employment. The appeal of a certified "Made in Afghanistan" (or "Made in Afghanistan by Afghan women") label could offset the increased costs of production and transport. This is just one example: creating markets for products Afghanistan can produce and providing marketing assistance is key to alternative development.

The U.S. has made some efforts in this direction. In early 2007, the U.S. Department of the Treasury sponsored a visit to Afghanistan by the president of the Dole Fruit Company. After a brief look around, he asked for 10,000 ha of land with no one on it so that he could start a plantation that would be cultivated according to international standards. If he got the land, he would probably end up hiring migrant laborers from Pakistan, as they would be cheaper and more docile than Afghan workers. Afghanistan could then look forward to additional ethnic conflict on the Sri Lankan model, as Afghan farmers claimed that their land had been illegally expropriated for a foreign company employing foreign workers....

Still as a producer in Afghanistan myself, I understand Dole's point of view. In Gulestan we do not have the luxury of running our own plantations. To make néroli (essential oil of bitter orange blossoms, known as naranj in Afghanistan) we have to harvest the flowers from existing orange groves, enabling the growers to profit from blossoms they had previously only enjoyed for their fragrance. It turned to be not quite as easy as it sounds.

We registered the company in December 2004 and ordered a steam distiller from Turkey in order to distill the orange blossoms of Jalalabad into néroli. Based on our survey of the orange trees of Jalalabad, we estimated that the first year we might be able to produce up to 40 kg of néroli, which sold for a bulk price of about $3,000/kg. The income of $120,000 would have covered our entire initial investment and set us on the road to profitability. Unfortunately due to misunderstandings about payment, snow in Iran, a huge traffic backup at the customs post, the requirement that trucks be offloaded and then reloaded when entering Afghanistan, and poor roads, the still arrived in Jalalabad only after the orange blossoms had all fallen.

The next year, we set out to distill néroli again and found, to our surprise, that orange growers were extremely reluctant to allow us to harvest the orange blossoms, though we offered to pay in cash. They were unfamiliar with the process and feared either that harvesting the flowers would harm their fruit or that we would take advantage of them in some way. Many growers had already sold their fruit to traders on futures contracts and feared that harvesting the flowers might prevent them from delivering the amounts they had promised, landing them in debt. Some demanded that, in return for harvesting the orange blossoms, we purchase a futures contract on their entire fruit production ourselves. When we agreed to one such contract with a grower, the other growers raised their price by a factor of 10. In addition, early rain cut the season short. We produced barely one liter of néroli.

Later in 2005, when we were processing other materials, we lost access to our equipment for several months while the olive oil factory where we had installed it was used as headquarters for the parliamentary and provincial elections in Nangarhar.

The next year, 2007, we prepared a little better with the farmers, but most of them were still reluctant. When we went to recondition our equipment, which was installed in the state olive oil factory in Hadda, we were denied access. The former director of the Nangarhar Valley Development Authority, who had given us permission to use the premises, had been arrested on corruption charges, and after the elections his clan had been removed from control of the provincial administration. The new management was unwilling to risk letting us work. Due to delays in payment from an international donor (such delays are the rule with donors, regardless of the progress of agricultural seasons), we had kept a smaller still we had made that was due to be turned over to a group of farmers, and we used that equipment to produce a smaller amount, nearly 2 liters of néroli. We have now made additional contacts in the area, including with the U.S.-sponsored Alternative Livelihood Program/East. ALP/E has established a fruit producers association with whom we can negotiate the purchase of flowers in advance. We had approached ALP earlier and gotten no response, for reasons that remain opaque but that may have to do with some disbursement problems of USAID resulting from a decision by the director to review its implementation mechanisms. (I know it's confusing and complicated and not too bloggy -- think how it sounds to Afghan farmers.) Therefore in 2008, we may be able to approach perhaps half of the production level we had hoped for in 2005.

This brief description can only summarize a few of the obstacles risks inherent in introducing a new source of livelihood to Afghanistan. (I do not mention the arrest of some of our employees for possession of legal industrial alcohol or our inability to pay required taxes since officials will not allow us to pay without bribes -- recently they have added late charges to our taxes since they would not accept payment without bribes). It suffices to illustrate the high risk of economic activity, especially of agro-based manufacturing, in Afghanistan. Generally, it is safer to stick to illegal activities, since everyone understands the rules. Drug traffickers offer a full package of finance, extension services, insurance, and marketing, backed up by threats of force. Alternative livelihood programs have had none of these.

What all this shows is that moving rural Afghanistan into the licit economy requires investment in many kinds of public goods -- roads, security, credit, marketing, storage, extension service -- and the creation of rural industries as well. All of this depends in turn on linking Afghanistan to regional and global markets and assuring access to those markets -- which requires political and business initiatives at the policy level, not a beltway consulting firm sitting in a pink palace in Lashkargah ("pink palace" is the nickname for the residence used by Chemonics in Helmand -- it is owned by one of the local drug barons).

While ALP started out with make work projects (ditch digging for $3/day, compared to $25/day for working the popy harvest) and giving away wheat seeds. An Afghan colleague (a government official) came across one such project in Nangarhar in 2005 and found the workers laughing at the pointlessness of their activity. Those foolish foreigners again! Well, we all know that foreigners lack capacity....

The current strategy pays repeated homage to the need for a more comprehensive alternative livelihood project, though a careful grammatical analysis of verb tenses used reveals that these "alternative livelihoods" thus far exist only in a higher realm than mere reality. The strategy also fails to address the wasteful and ineffective delivery methods that make farmers unwilling to trust their livelihoods to such programs.

The problem is time and risk. Officials claim that they will engage in eradication only where there are alternative livelihoods. Of course this is not exactly true, since the rich and politically connected will be in a much better position to take advantage of any alternatives available, but that is not the main problem with this argument. The main problem is that alternatives do not simply exist or not. They take time to develop, and the farmers are unable to estimate how risky they are. As David Mansfield has repeatedly argued, poppy cultivation is mainly motivated not by profit seeking but by risk management. Few farmers grow only poppy, however lucrative it may appear to be (and the gross prices per kg that are always quoted do not take into accounts the cost of labor and, especially, of credit). Poppy growing is part of a strategy of livelihood diversification in extended families designed to hedge against the exceedingly high level of risk. Gulestan's experience shows that farmers are wise to take out such insurance.

What this means for alternative livelihoods is that farmers cannot reasonably be expected to abandon a pivotal part of their livelihood strategy as soon as a U.S. government official decides that he has an alternative livelihood. The risk-averse Afghan peasant and the foreign official under pressure from a capital to show quick results have different definitions of when alternatives to poppy cultivation are available.

One example courtesy of David Mansfield (personal communication): In Qandahar an aid organization involved in alternative livelihoods provided funding to enable farmers in Qandahar to plant fruit trees.The farmers planted the trees in their poppy fields and continued to grow poppy among the saplings. As the trees matured over several years, their shade would prevent the poppy from growing, while their increasing yield of fruit would provide cash income. If the fruit did not work out, the farmers still had their poppy. To Mansfield this appeared to be a clever way to manage the transition from opium to another crop. The aid donor, however, terminated the project. Since alternative livelihoods were now “available,” the farmers should not have grown any poppy. The aid organization was not prepared to tolerate a gradual transition as farmers learned how and to what extent they could rely on fruit production for livelihoods and credit. Farmers will initially diversify into other activities and only gradually abandon poppy as they develop greater confidence in other economic activities.

But the current counter-narcotics strategy has no plan for managing the transition and sequencing the different policy tools. How to turn a list of activities into a counter-narcotics strategy that serves Afghan and international overall objectives will be the subject of the last and final post.

Note: I am traveling in Afghanistan and Pakistan for the next couple of weeks. This may limit my ability to post and respond to comments and queries. But I'll be back....