Iberoamericana.

Nordic Journal of Latin American and Caribbean Studies

Vol. XXXVII: 2 2007, pp. 89-105

THE ILLEGAL DRUG INDUSTRY IN LATIN AMERICA: THE COCA-COCAINE

COMMODITY VALUE CHAIN

Menno Vellinga * .

I. INTRODUCTION
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
*
I am grateful to an anonymous reviewer for his/her helpful comments and suggestions

doi:https://doi.org/10.16993/ibero.209
90 The Illegal Drug Industry in Latin America

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. In recent years this phasing has changed. Increasingly, the
phases of coca growing, paste and base production are being integrated by
traffickers looking for ways to increase their access to a greater part of the
added value. Small-scale trafficking operations have increased in numbers.
In the Northern countries, large-scale operations in warehousing, transport,
distribution and retailing are being avoided with the creation of direct links
between the traffickers and the clients downstream, integrating various
phases in the value chain.
 Menno Vellinga 91

Figure 1 – The Cocaine Commodity Chain

II. COCA GROWING AND COCAINE PRODUCTION

Coca is an “easy” crop, and coca growing does no require intensive
preparation. The simple tasks of clearing the field through “slash and
burn”, preparing the seedbeds, transplanting the seedlings, maintaining the
field, and harvesting the leaves, can easily be performed -and often are- by
poor migrants without agricultural background. In most regions, coca is
cultivated on small family plots seldom exceeding the size of two hectares.
It is mostly grown in combination with other market crops and with food
crops as part of a diversification strategy. Coca “plantations” covering
extensive areas are rare. Only in recent years has this phenomenon emerged
in Colombia. Most coca cultivation takes place in areas of recent
colonization and expansion of the agricultural frontier. The peasant
households in these areas have little access to resources such as capital and
technology, but account for a relatively large amount of unskilled labor.
They adopt coca cultivation as an almost logical choice with their crop
diversification strategy. Coca guarantees a continuous flow of income and
this continuity is almost as important as the amount of income.
Consequently, peasants will respond to a drop in the price of coca leaf by
expanding the coca-cultivated area instead of shifting to other crops.
Within the diversified agriculture in the frontier areas, coca has been less
subject to radical price fluctuations than other crops. It has a secure market
that guarantees a steady flow of income to the individual peasant
92 The Illegal Drug Industry in Latin America

household. This is coca’s basic advantage. At the same time, this advantage
gives an idea of the magnitude of the problems that accompany crop
substitution. A peasant household can expect to have some income within
twelve to fifteen months after having planted coca. The shrub is fully
grown after two to three years and will continue to produce for fifteen years
or more with three to four crops a year. Coca requires less investment and
attention than other crops once it has been planted and will require only
manual labor and no special skills. Most peasant families in Bolivia and
Peru are familiar with coca. The product is easy to harvest, pack and
transport and in most cases will have an assured market nearby. Under
“normal” circumstances, coca would be the ideal income-gathering crop to
alleviate poverty and rural underdevelopment. Also, the production of
cocaine is not a very elaborate or difficult process. The industry is, in fact,
perfectly adapted to the conditions of an underdeveloped rural economy:
the manufacturing process is not capital intensive, does not have large
economies of scale, does not require large amounts of skilled labor, and
uses production processes that are relatively easy to organize. These
characteristics explain the flexibility with which the industry has been able
to respond to the fluctuations in demand in consumer countries, to changes
in anti-drug policies, and to repressive operations by the military and law-
enforcement personnel. This adaptation also explains why it has been so
difficult to find an alternative to the industry.
What parties are involved in this production and trafficking of
cocaine, and why and how has this involvement come about? Among the
coca-producing countries major differences have developed as to the
organization of the sector and the market strategies of the entrepreneurs
concerned (Laserna, 1997). Before Bolivia embarked on its “option zero”
strategy under the previous government, a certain division of labor had
emerged among the three producer countries plus Brazil and Mexico.
Colombia had become more involved in cocaine production based on coca
paste production elsewhere, and in trafficking, although Brazil and Mexico
have been rapidly gaining terrain in this sector. Suppression of coca
cultivation in Bolivia and Peru has led to an explosive growth of coca
cultivation in Colombia. In Bolivia and Peru the clandestine drug economy
had become more interwoven with the formal economy. Many of those
involved in drug production and trafficking have been moving back and
forth between the two sectors. A small mafia-type drug elite still exists, but
it is hardly as prominent as the powerful, well-organized Colombian drug
lords of the 1990s. The intensification of repressive policies has
strengthened the tendency of these informal and the formal sectors to
interpenetrate. Generally, repression of the drug industry’s activities has
 Menno Vellinga 93

resulted in a dispersal of production facilities and a decomposition of the

production process into small, technically simple, units that do not require a
major investment (Poret and Tejedo, 2006). In 2004, in the Andean region,
the intervention by law enforcement was reported of 8,298 of such coca
processing laboratories (World Drug Report, 2006). This way, drug
production has become accessible to a wider sector of micro- and small
entrepreneurs, who at the same time may be coca-growing peasants and
managers of small coca-paste-producing facilities. Especially in Peru this
activity to produce coca paste or even cocaine base by peasants who in the
past were just selling coca leaf, has become widespread. This way they
pocket a greater share of the value added and sell directly to representatives
of wholesalers who connect with exporters who, in turn, have a direct link
to internationally operating organizations with a heavy presence of
Colombian and Mexican traffickers.
The basic motive for engaging in coca activities and paste production
is simple and flows from the countries’ long-term structural poverty and
underdevelopment and the absence of economic alternatives. In the coca-
producing regions, the economic rewards have helped to cushion the worst
extremes of poverty, but they have not brought sustainable development in
terms of improved housing, education, or healthcare. In this way, Bolivia in
particular has been repeating its historical role of supplying world markets
with raw materials without reaping major benefits. In the late 1980s Bolivia
had become heavily dependent on income generated and employment
secured by the drug industry. Its legal economy had been undermined by
overvalued exchange rates resulting from the massive influx of narco-
dollars, by the weakening of local industry, by the collapse of non-
traditional exports, and by the boom in financial speculation. Since then,
the legal economy has recuperated slightly. However, given the small size
of the formal economy in Bolivia, a vulnerability to a possible “economic
narco-addiction” remains. An important “positive” difference with the
Peruvian and Colombian experience, where socially and politically drug-
linked violence has been rampant, has been the lack of such widespread
violence between drug lords and between them and the state. The major
Bolivian traffickers’ close family and business links may have contributed
to this phenomenon (Painter, 1994).
Coca cultivation and cocaine production has been moving back and
forth between the Andean countries and the dynamics of the industry in
each of the countries has to take their interconnectedness into
consideration. In the course of the last few decades we have seen the so-
called “balloon effect” at work, e.g. repressive actions by the forces of law
enforcement and/or market considerations affecting supply in one of the
94 The Illegal Drug Industry in Latin America

countries, will lead to an expansion of production in the other two

(Naranjo, 2007). This way, the total acreage under coca in the Andean
region is unlikely to change drastically, in spite of sensational accounts to
the contrary by the authorities involved in drug control. In fact, the total
area under coca has remained almost the same in the tumultuous decade of
the 1990s, although important shifts between the three countries did occur.
Estimated total production of cocaine has fluctuated between 774 (1990)
and 883 (2000) metric tons (Global Illicit Drug Trends, 2001), of which
approximately one-third will be intercepted by law enforcement.
Table 1 - Area under coca, 1991-2000 (hectares)
1990 2000
Peru 121,300 34,200
Bolivia 50,300 14,600
Colombia 40,100 163,289
Total 211,700 212,089
Source: World Drug Report (2006).
This relative “stability” also applies to the income from coca
cultivation which is substantial in local terms, although it amounts to very
little: one percent of the export value of cocaine. No wonder that many
peasants will try to get a greater share of the value added by including the
production of coca paste in their activities. The procedure is not very
complicated and will enable them to increase their share to roughly nine
per cent of the wholesale price in the source country.
Coca cultivation will require an annual investment of close to 170
US dollars per hectare. This includes: land preparation, coca seedlings,
fertilizer and/or other agrochemicals, equipment. One hectare will yield
about three metric tons of leaf per year, which eventually will result in the
production of seven to eight kilogram of cocaine. Producing coca paste or
cocaine base will require an extra investment of 120 dollars per kilogram.
Annual peasant income will amount to close to 2,500 dollars per hectare
with coca, an income that would be impossible to obtain through any
alternative crop. The cost of putting one kilogram of cocaine in the
consumer market abroad amounts to between 6,600 and 8,700 dollars,
which represents between 38 and 50 percent of the wholesale price. Every
phase in the trafficking process is accompanied by a series of mark ups and
prices may reach 100,000 US dollars or more per kilogram at the retail
level in the United States or in Western Europe (Allen, 2005; National
Drug Intelligence Center, 2004).
 Menno Vellinga 95

Table 2 - Cocaine Industry Price Structure (in U.S. dollars per kilogram)

Coca cultivation/coca paste production 600-800

Transport to cocaine labs 100

Chemical precursors 200

Refining costs 200-300

Trafficking to consumer markets 3,200

Vigilance, security, bribes 500

Money laundering 1,700-3,400

Other (lawyers, rents, etc.) 200

Total 6,600-8,700
Source: National Drug Intelligence Center (2004), Allen (2005), Zaitch (2002),
These are general numbers. There is considerable price variation over
place and time. The illegality of the industry has resulted in great market
segmentation. Price levels are not the result of agreements between the
major organizations controlling the market, but result from their strong
competition and the actions of small smugglers trying to enter the market.
The amounts listed in Table 2 represent the costs incurred by major
exporters. It shows that the costs of putting a kilogram of cocaine in the
American or West European market are by no means insignificant,
although they pale in comparison with the net profits. It becomes clear at
the same time why in recent years micro entrepreneur-exporters and body
packers have been so successful, saving substantial amounts in the
trafficking and laundering phases, although probably receiving smaller
amounts at the wholesale level in the destination points.
Changes in Business Practices
The drug industry has changed considerably since the demise of the
“cartels’ in the 1990s. Cocaine production and trafficking has become more
differentiated and the enterprises have become more heterogeneous. Those
producing cocaine may take many forms. These may vary from a one
person enterprise with a small laboratory, selling small volumes to the
exporters, to a big laboratory in which many producers and exporters at the
same time are involved. Export enterprises are often somewhat larger. This
has to do with the complexity of the logistics of an illegal business, the
need to deal with international law enforcement, the conclusion of deals
overseas, the neutralization of control and detection, and the development
96 The Illegal Drug Industry in Latin America

of markets downstream. These enterprises, however, are not ‘large’ in any

physical sense. It would make them vulnerable against law enforcement.
They are sizable through their operation of complex systems of contracting
and subcontracting, through their access to resources, their capability to
move great volumes of drugs and to accumulate mega profits. Next to these
businesses, however, also independent or individual exporters have
emerged who operate for limited time periods and move smaller quantities
of cocaine. These trafficking enterprises -called ‘boutiques’- have greatly
increased in numbers in the last few years.1The sector has a low threshold.
All one needs is some basic investment capital, a number of contacts
overseas and the capability to enforce the conclusion of deals. These are
not stable enterprises. They will often start operations, paying one or two
‘mules’ for transporting small quantities. As business grows, the need will
arise for a larger, more specialized way of conducting the business. In that
case, activities in transportation, money laundering, and security may be
subcontracted, often in coordination with local networks of traffickers
overseas, such as has happened in Galicia, Spain and in various regions in
Mexico.2 However, the notion of “cartel” -applied to the organization of
the trade in the 1980s and 1990s- with its suggestion of large, stable,
bureaucratic structures, is not a plausible way of conceptualizing present-
day drug trafficking operations, at least not in the South American
countries.
The people involved in these operations represent a new generation
of traffickers, after the marihuana smugglers of the 1970s and the era of the
drug lords in the 1980s and 1990s. This third generation of traffickers has
been organizing their businesses with maximum flexibility without
regulation of any kind, while adapting to the illegal nature of the cocaine
trade. The new entrepreneurs are more low-profile with a restrained life
style, very different from the conspicuous consumption of the old drug
lords. They have no criminal records. They formally do not own property
or may present themselves as students or small businessmen without any
possible reference to illicit activity. They prefer to operate in total
anonymity, do not have offices, work from their homes and refrain from
using bank accounts that run the risk of being traced and investigated.3
They do not use telephones or cell phones for business and prefer personnel
messengers to modern means of communication. They transport themselves
in old beat-up cars instead of in flashy four wheel drives. Their new
organizations are small and cell-like. They are informal, small, mutating
and decentralised. Some are individual enterprises, others include temporal
partnerships between two or three people. Personnel is often recruited ad
hoc as part of complex contracting and sub-contracting schemes.
 Menno Vellinga 97

Coordination with other organizations takes place on the basis of the

special knowledge about logistics, communications, security, money
laundering, investments, etc. that each may possess. Export volumes may
vary from 200 to 300 kilos per month, far removed from those large
organizations that have survived and that may transport 7000 kilos or more
in one load. Smuggling toward European destination has become a
lucrative business yielding up to 80.000 U.S. dollars per kilo wholesale and
between 100.000 and 150.000 dollars street value.4 Large-scale stable
organizations are avoided in order to reduce vulnerability in the face of
repression and active law enforcement. This does not preclude the
possibility of organization among traffickers in order to co-insure
shipments, exchange loads or share intelligence. The breaking up of the
“cartels” put an end to a small number of businesses whose economic
power could give them access to the highest level of government
organizations (which in Mexico still can be found) and with a capacity to
use violence on such a massive scale that the state would be undermined
(such as in Colombia). Their place has been taken by an estimated number
of three hundred small refining and trafficking organizations. Among them
some fifty organizations stand out.5 They control the export of cocaine
toward Northern markets and function in practice as an oligopoly with
often savage internal competition. The development of cocaine and/or
heroin distribution networks downstream was helped in the United States
by the presence of large Colombian immigrant communities in the big
cities, especially in the Eastern part of the country. The formation of these
networks and their exclusive claim to markets and market shares was
facilitated by the proclivity of Colombians to use extreme violence against
competing trafficking organizations. The conditions imposed by illegality
call for flexible ways of conducting business and a loose organization
minimizing the risk of seizure. Several of these small enterprises may be
interconnected while trying to conclude a deal. Some of them will be short-
lived, single operations, others may last longer. These new cocaine
enterprises are heterogeneous in their structure and operations and in fact
consist of constantly changing networks tied together through precarious
and variable transactions while functioning on the basis of trust (confianza)
and the threat of violence (Vellinga, 2004). In many cases, perfectly legal
services (in transport, money laundering and investment, legal assistance,
etc.), will be contracted. In addition, the business may be extended into
society by offering a participation in an export venture as a favor to friends,
politicians or civil servants whose support has to be secured
Next to this informalisation of business practices, a certain
“democratization” of the trade has taken place. Next to the container-sized
98 The Illegal Drug Industry in Latin America

shipments, a great number of couriers are trying to get into the business,
smuggling a few pounds of cocaine. Many among them are bodypackers,
boleros, smugglers of the bolitos (cocaine put in condoms or fingers of
surgical gloves and swallowed). Since the end of the 1990s, these drug
couriers have been arriving at American and West European airports by the
ten thousands. This modality of drug smuggling is not new. It has been
reported in the beginning of the 1980s.6 What is new, however, are the
large numbers of people involved. Official estimates for Amsterdam
International Airport, one of the main gateways to Europe for drug
smugglers, mentioned numbers between 26,000 and 44,000 for the year
2002. Bodypackers will smuggle between 400 grams and one kilo per
person. With the maximum estimate of people involved (44,000), this
would have meant an effort to smuggle volumes between 17.6 tons (at 400
grams per person) and 44 tons (at one kilo each) into the country. The
minimum estimate (26,000) would produce smuggled volumes between
10.4 and 26 tons. The total volume of cocaine smuggled annually into the
European Union has been estimated at between 100 and 130 tons. The
present (2006) size of the world market may be estimated at between 500
and 600 metric tons. The bulk of exported cocaine will continue to be
smuggled through multi-hundred kilo operations by sea, using regular
containership connections, fishing vessels, and speed boats. However, it is
obvious that smuggling through individual couriers has become an activity
of increasing importance. Worldwide, this activity may involve more than
100.000 people.7 This mushroom like growth runs the danger of
overwhelming law enforcement authorities involved in drug control and
has been exhausting the resources needed to catch the major loads. Some
analysts even assume this to be a conscious strategy of the major cocaine
smuggling organizations.8 At Amsterdam Airport, the authorities have
reacted in mid 2004, intensifying the control of flights from Latin America
and the Caribbean. It is still not known to what extent the so-called
“balloon effect” (e.g. suppression here will lead inevitably to an expansion
in other places) will make itself felt.9
Most couriers are contracted for one or two trips. There appears to be
an unlimited number of candidate couriers who are willing to take the risk
of being caught in order to get access to fast cash. Proceeds may vary from
1500 to 10.000 U.S. dollars per trip, depending on nationality, type of
courier and quantity of drugs smuggled (Zaitch, 2002). The risks are being
absorbed by the courier. In most cases he will not even know the people
who send him on his flight, and those who will be waiting for him at his
destination. For the organizers of the trafficking operation the risks are
small. Their identities will remain concealed from the law enforcement
 Menno Vellinga 99

authorities in case of seizure. The involvement of ever increasing numbers

of people in these illegitimate activities has social consequences, the extent
of which we may not even know yet. The generalized presence of role
models with a life style showing a background of narco riqueza may
prepare an entire generation for a life in crime. This, on its turn, will
guarantee an unlimited supply of couriers. Drug control efforts have been
largely ineffective in this area. For every smuggler caught, ten or more
pass. Next to the larger smuggling endeavours, shipping tons of cocaine
packed in containers, the drugs transporting ‘mule’ will be an increasingly
important factor in drug smuggling.
Changes in Money Laundering Practices
Laundering of the proceeds of the drug trade is the crucial phase in
drug trafficking (Thoumi, 2003). It determines to what extent the ill-
begotten monies can be “legalized” and invested into the legal formal
economy. Successful money laundering is a precondition for keeping the
illegal drug industry functioning at its present pace. Traditionally, the
laundering process has involved three phases10. During the first phase, or
“placement” the proceeds are moved in cash or as profits of an illegitimate
business. This may involve contraband activity, great amounts of cash to be
moved abroad, deposits just below the limits allowed in a range of banking
institutions, changes from cash to cashier checks, precious metals or
diamonds. The laundering process often passes through business activities
that normally handle large amounts of cash, like bars, restaurants, night
clubs, beauty parlors and check and foreign money exchanges. This first
phase is critical and the one most vulnerable to intervention by law
enforcement. During the second phase, or “layering”, the illegally obtained
funds move through various businesses, corporations or financial
institutions, are mixed with legally obtained funds and move back and forth
between domestic and/or foreign banking institutions in order to escape
detection. During the third phase, or “integration”, the illegal funds are
being used in normal, legal transactions and the laundering process is
concluded. Especially in the case of the larger trafficking enterprises,
laundering has involved the creation of ‘paper’ corporations abroad in
“safe” financial centers, such as Panama, Cayman Islands, Bermuda,
Curaçao, and Switzerland, while establishing foreign bank accounts that
permit bogus transactions for consultancy fees, salaries, operation costs, a
wide range of services and the like. For the smaller enterprises with less
money involved, laundering may be less complicated, above all involving
businesses and services that function as a façade behind which money is
channeled into the legal circuit through a range of fake activities.
100 The Illegal Drug Industry in Latin America

The new generation of traffickers has been operating low profile in

all phases of the trade, including the laundering phase. Couriers are used
instead of electronic means to carry large sums of cash, eventually to be
deposited in national or foreign banks. These sums that are transported,
often across borders, may be quite substantial in size11. The number of
‘mules’ carrying great sums of money around, has increased parallel to the
sharp increase of ‘mules’ and body packers carrying cocaine12 The double-
bottom suitcases have since long given way to more sophisticated ways of
hiding cash in articles of ‘normal’ use that can be carried on the plane, such
as household electronics, toys, crafts, etc. Increasingly, proceeds from the
drug trade are kept in cash and laundered in small amounts that don’t
arouse attention of the authorities13. To launder large amounts of money at
the same time has become difficult in Colombia. People who would do so
would become clearly conspicuous and run a considerable risk of being
identified. This applies even more to Bolivia and Peru14 A new strategy has
included investments in life policies that are later cancelled, freeing
moneys that than can be invested in the legal circuit. In the years 2001 and
2002, Colombian traffickers appeared to have invested for a total of 80
million U.S. dollars in such policies.15 In most countries money laundering
laws have been woefully out of date complicating financial investigations
by the authorities. This situation, however, may change soon. In all
Western countries new legislation directed towards the identification,
freezing and confiscation of the proceeds from drug trafficking have been
put on the books, in particular after the happenings of 9/11.The
effectiveness of the new policies is still hard to establish. Yet it is obvious,
and we can see this already reflected in the way in which the new
generation of traffickers operate, that low profile will remain the rule in
laundering for the time to come.
Trafficking and Marketing
Originally, the strategy of Colombian exporters has been to control
the process of transport, export and marketing downstream. An estimated
70 to 80 per cent of cocaine exports in the 1970s and 1980s destined for the
United States market passed through Colombian hands, using the
Colombian migrant communities in the big American cities. Since the,
traffickers from Mexico and the Caribbean have become important
players16. The money interests are huge. One kilo of cocaine in Colombia
will cost between 100 and 1400 U.S. dollars. The same kilo may yield ten
to twenty times that amount in wholesale markets of major United States
entry cities. The Mexican organizations in particular have enhanced their
bargaining position with the Colombian cocaine producers and organize
 Menno Vellinga 101

now approximately half of the cocaine transports directed towards the U.S.,
operating brazenly and violently17The other half is smuggled through
Central America and the Caribbean (Guatemala, Panama, Dominican
Republic, Haiti, Jamaica and Puerto Rico). Only a few percent finds its way
directly from Colombia to U.S. destinations. Bulk shipments are
transported to these locations, to be warehoused, repackaged and smuggled
into the U.S. using an infinite variety of methods (Allen, 2004).
Mexico has become the most important route for cocaine shipments
destined for the U.S. Colombian trafficking organizations generally have
preferred to maintain ownership of the shipments but soon became
dependent on the local Mexican organizations (often traditional drug
smugglers) to channel the shipments to the Northern border states.
Originally, the Mexican gangs involved in this venture were paid in cash
(1500 - 2000 US dollars per kilo), but soon they renegotiated and had
themselves paid in cocaine for services rendered. Subsequently, they
started moving the trade through their own distribution channels. The
presence of sizable populations of Mexican origins in all big U.S. cities,
enabled them to control trafficking downstream to the street level. The drug
trade has become Mexico’s largest foreign exchange earner with an amount
estimated at between 30 and 40 billion U.S. dollars annually. Mexico’s
presence is strongest in the Western part of the U.S. The Colombian
traffickers have maintained their hold in the Eastern part with help of
traffickers from Puerto Rico, the Dominican Republic, Haiti and Jamaica
(Andreas, 2004).
The Caribbean is for Colombian traffickers their natural “bridge” to
the United States. At the same time it is the most controlled area by the
U.S. coast guard and other forces of law enforcement. However, the high
surcharge for moving shipments through Mexico (fifty per cent!) has led to
a shift to the traditional Caribbean routes, which calculate a surcharge of
less than half the cost of the Mexican route.
Also, the Caribbean is home to an off-shore banking system that
serves the laundering of drug money. Many Caribbean nations are
economically and politically weak, are sucked into the drug trade and are at
risk of losing their sovereignty (Griffith, 2004).
The distribution of profits at the various levels of the value chain is
quite uneven. The greatest jumps in earnings occur at the levels of transport
and distribution and not at those where the actual commodity is being
produced. High percentages of the profits realized in the countries of
demand will remain there. Obviously, this whole money making structure
remains a function of the industry’s illegality.
102 The Illegal Drug Industry in Latin America

III. CONCLUSION
The drug industry is a very dynamic one, expanding its operations
and exploring new markets, while constantly changing the organization of
the trade, its business practices, the participating personnel, their social
practices and relations, the linkages with other sectors of civil society and
the state, and the relationship towards networks of organized crime. The
industry is forced to be flexible when developing answers to continually
changing conjunctures involving changes in demand, actions of law
enforcement and drug control or developments in international trade. The
well-established drug trade organizations are disappearing. They have
proven to be vulnerable against the forces of drug control and law
enforcement. Most new drug businesses are informal, small, mutating and
decentralized. The trade has ‘informalized’ with a change in smuggling
patterns that reflect these developments. A new generation of traffickers
has been organizing the trade in a low profile and informal way. They have
avoided those features that have led to the demise of the cartels, such as:
large scale operations, a visible presence, conspicuous consumption and
widespread use of violence. The changing trade patterns have been
integrating increasing numbers of people into the drug trade as courier,
‘mule’ or bolero, contracted to carry limited-size loads overseas, using
scheduled flights through international airports. This phenomenon reflects
the atomization of the drug business after the disintegration of the cartels.
Scores of small and micro-entrepreneurs have entered the sector. They
often work independently, integrating various phases in the value chain
under their own control, while at the same time reaping a major part of the
total value mark up. This expansion of the small-scale organization of the
trade has presented new challenges to the forces of law enforcement and
drug control. The international couriers account for the majority of people
detained and charged for cocaine smuggling. However, they will not lead
law enforcement to the drug entrepreneur who organized the trade. In most
cases, the courier will not know who sent him on his trip and who will
receive the load upon arrival. For the organizing entrepreneur the couriers
are expendable, personnel that can be replaced easily. ‘Mules’ may be
ruthlessly sacrificed as part of smuggling strategies and tactics defined
without their knowledge and control. The continuing economic crisis in
Latin America has created a huge reservoir of middle and lower-middle
class people who are willing to take the risk in search of means to improve
their socio-economic situation.18
The drug industry has always fascinated outsiders and onlookers. In
the news we read about spectacular smuggling operations. The huge profits
may entice certain traffickers to “science fiction” type scenarios in order to
 Menno Vellinga 103

get their cargo at its destination and there are few limits to the imagination.
In September 2000, a Bogotá-based group of traffickers were apprehended
in connection with the construction in secret of a submarine for the
transport of cocaine to U.S. shores.19 At the same time, however, the
cocaine trade is also a business in which many small low-profile traders
quietly go their ways, refraining from any activity that may call the
attention of law enforcement. It is this sector that has grown in importance
and one may expect it to be setting the trend for changes in business
practices within the industry for years to come. The organization of the
coca-cocaine industry and the value mark ups that are realized at every
phase of production and trafficking are totally conditioned by its illegality.
A change in the prohibition regime towards decriminalization would
radically change this picture, erase the mega profits of the trade in one
stroke, eliminate its criminal connection and create a situation not very
different from the one we have with alcohol and tobacco.

NOTES
1
“Narcotráfico: La Generación ‘$’, Revista Semana (Bogotá)), May 4, 2003; “Burriers”, El
Comercio (Lima), February 13, 2005; “Los Narcos Usan de Mulas a Niños y a Gente
Pobre,” La Razón (La Paz), September 22, 2005; “Bebés y Ancianos en el Narcotráfico,”
El Diario (La Paz), January 16, 2005;”Mulas al por mayor,” Clarin (Buenos Aires),
November 25, 2006
2
El Tiempo (Bogotá), January 4, 2004; “La Coca de los Divinos Niños,” Revista Caretas
(Lima), June 13, 2002; “Mexicanos financian a las micromafias Colombianas,” El
Universal (Mexico), July 10, 2006; also Astorga (2004) 85-102.
3
“La Nueva Generación de la Mafia,” El Tiempo (Bogotá), September, 2001; “Mafia: El Nuevo
Estilo que Opera Desde Hace Varios Años in Colombia,” El Tiempo (Bogotá), January
18, 2004; “Veinte Años Después,” Revista Cambio (Bogotá), January 18, 2004; this
change in business practices is generally present, see for the Mexican case: “El Doctor
dio al Cartel de Juárez una Visión Empresarial,” El Universal (México), November 22,
2005; “El Narco busca consolidar Mercado Interno,” El Universal (Mexico), May 1,
2006.
4
El Tiempo (Bogotá), January 18, 2004; Folha de São Paulo (São Paulo), April 5, 2003; El País
(Madrid), September 6, 2006
5
“Drogas,” Folha de São Paulo), May 4, 2002;El Tiempo( Bogotá), January 18, 2004;
Involvement in trafficking among the urban poor has mushroomed ; faced with stagnating
income situations, many apparently have taken matters into their own hands, entering the
drug trade. This move has been behind much of the upsurge in violence in the big cities
of Latin America; “Policia Nacional: Diez porciento esta implicado en el Tráfico de
Drogas,” La Republica (Lima), August 31, 2004; Moser and Mcllwaine(2006).
6
Volkskrant (Netherlands), October 4, 2003; communication Netherlands Ministry of Justice,
OM Haarlem, April 15, 2003; the numbers of drug smugglers arriving at Amsterdam
Airport were mentioned by the airport police and the local judicial authorities and at the
time represented serious estimates, although at first sight they seemed like an other case
104 The Illegal Drug Industry in Latin America

of the statistical sensationalism that we often find in estimates of the impact of the drug
trade.
7
NRC-Handelsblad, (Netherlands), June 26,2003 and October 4, 2003; cf. the calculations by
Zaitch, (2002) 81 , on the basis of data from the former Observatoire Geopolitique des
Drogues in Paris and from various Colombian sources.
8
Volkskrant (Netherlands), July 28 2004; NRC-Handelsblad (Netherlands), July 24, 2004.
9
NRC-Handelsblad (Netherlands), September 29, 2002; “Por un Puñado de Dolares,” El
Espectador (Bogotá), August 19, 2003; also Zaitch (2002) 151
10
“Lavado de Dinero: Mal que Recorre el Mundo,” La Hora (Quito), October 27, 2003; also
Reuter and Truman (2005), 25-45.
11
“Colombians and the U.S. break up World’s biggest Money Laundering Ring,” Colombian
Office of the President, April 22, 2002; the massive influx of dollars had severe macro-
economic consequences; in 2004/2005 the Colombian peso rose 17 percent against the
dollar, The money laundering ring discovered in April 2002 operated through a
Panamenian company where regular deposits were made of 150.000 U.S. dollars; El
Tiempo (Bogotá), September 11, 2005.
12
“Alerta por Lavado de Dinero,” El Tiempo (Bogotá), April 11, 2002; “La Mafia Diversifica
las Formas de Lavado,” El Comercio (Lima), September 19, 2005; “Inteligencia
Financiera Descubre 55 millones de Dolares en Lavado de Activos,” El Comercio
(Lima), January 8, 2006; a spectacular exmple presented itself in Aprl 2002 when a
courier was apprehended at Cali Airport with1.3 million U.S. dollars strapped to his body,
13
“Por un Puñado de Dolares,” El Espectador (Bogotá), August 8, 2003, the courier was
apprehended with 25.900 U.S. dollars in his stomach!
14
“Drug Money seized in Colombia,” Associated Press, August 25, 2001; a total of 35 million
U.S. dollars was found stashed away in the walls of two Bogotá apartments;
“Narcotráfico,” Revista Semana (Bogota), January 21, 2007 reports the seizure of over
60 million U.S. dollars in cash stashed away in a number of trunks kept in a Cali
apartment; see Thoumi (2003) 162-168 on the difficulties involved in laundering
substantial amounts of foreign exchange;
15
“Golpe a Red que Empleaba Polizas de Seguro para Lavar Dolares,” El Tiempo (Bogotá),
December 7, 2002; “NoTodo que Brille es Oro,” Revista Semana (Bogotá), February 12,
2006.
16
“La nueva Geografia del Narco,” La Jornada (Mexico), July 24, 2005.
17
“El Narcotrafico esta fuera de Control” El Universal (Mexico), July 26, 2006
18
A good picture of this phenomenon is presented in the Oscar-nominated movie Maria Full of
Grace; in Colombia, the movie struck a cord in the press it was renamed: Maria Llena de
Coca (Maria Filled with Coca); see El País (Cali), February 5, 2005.
19
“Mafias de Rusia, Holanda y Carteles Colombianos Detras del Submarino Encontrado en
Bogotá,” El Espectador (Bogotá), April 17, 2002; also: “A Profundidad,” Revista
Semana (Bogotá), April 21, 2002.
 Menno Vellinga 105

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