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Peru Economic Implications of Coca
Production and exports of coca and its derivatives have
many
different effects on the Peruvian economy, all of them
difficult
to quantify because basic information cannot be checked in
any
dependable way. On the positive side, coca adds to the
incomes of
otherwise extremely poor peasant producers and also adds
foreign
exchange earnings that, at least in part, flow through to
the
legal economy and help finance imports. On the negative
side,
coca pulls human effort and land into production at the
expense
of possible alternative food production; holds down the
price of
foreign currency and therefore the incentives for legal
exports;
causes ecological damage from the chemical residues used
to
process cocaine; increases violence and the costs to the
society
of trying to restrain it; and aggravates corruption in the
military, police, and civilian government. If coca
production
were to fall back to traditional levels of consumption by
Andean
peasants themselves, many Peruvians would lose income; if
it
continued at 1990-91 levels or grew, the society as a
whole would
be the poorer in terms of competitive strength in legal
markets
and in terms of civil order.
Neither Peru's national accounts nor its export data
include
any estimates for the value of coca leaf and its
derivatives. A
private statistical service, Cuánto S.A., estimates that
income
from coca added 7 percent to the officially calculated
value of
GDP in 1979 and 4 percent in 1989. Estimated drug exports
averaged US$1.4 billion in the years 1979-82 and US$1.6
billion
in 1986-89. Without counting coca, commodity exports in
1989 were
US$3.7 billion. Counting coca, they were US$5.6 billion.
Considering the agricultural sector separately, these
estimates suggest a strong impact, raising value added by
about
11 percent as of 1989. That extra income goes in unknown
proportions to dealers and processors (mostly Colombians);
to
third parties providing protection, including the Shining
Path;
and to peasant producers. Even though the share going to
peasant
producers may not be high, their incomes from coca can be
more
than seven times as high per hectare of land than could be
earned
in the next most profitable (legal) crop, coffee. Growers
in the
main producing region, the Upper Huallaga Valley, are
estimated
to earn about US$4,500 per year for each hectare in coca,
compared with about US$600 in coffee. Such differentials
are
mainly a matter of the high market value of coca, but they
also
reflect the fact that this particular region of Peru is
singularly well adapted to growth of coca and poorly
suited to
most alternative crops. Coca would be an ideal crop here,
with
low opportunity costs, if it were not for all its negative
human
and economic implications.
Government policies to restrain coca production and
marketing
have been more in the realm of police and military action
than
that of economics. One of the most appealing proposals
within the
range of economic policies has been to promote alternative
crops
through credit and technical assistance plus guaranteed
purchasing at favorable prices. The two main drawbacks to
developing such a program have been the government's own
lack of
financial resources and the enormous differentials between
earnings from coca and those possible from alternatives.
The
approach would have much more of a chance for success if
cocaine
demand in the United States could be reduced
significantly,
allowing the value of coca to fall. Absent such a change
on the
demand side, economic incentives in Peru work powerfully
to keep
up supply.
Data as of September 1992
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