World cocaine market ‘in retreat’?

According to this BBC report, years of government intervention by the Serious Organised Crime Agency to cut supplies of cocaine has been successful in reducing supply and so raising the price of the drug.

SOCA have followed a strategy of working in South America, the Caribbean, across the Atlantic and with European partners to intercept the suppliers. Wholesale prices have risen from £39,000 per kilo at the end of last year to £45,000, which would indicate a shortage of supply causing the equilibrium price for a demerit good to rise, reflecting some of the negative externalities and moving closer to the social cost. However, unfortunately there may also be a case of government failure in the form of unintended consequences: data collected by the Forensic Science Service suggests that almost a third of police seizures are now less than 9% pure, the lowest recorded purity level.

The implication is that drug gangs are maintaining their supernormal profit by using increasing amounts of chemicals - so-called cutting agents - to dilute cocaine powder sold on the streets of Britain. They include the cancer-causing drug phenacetin, cockroach insecticide and pet worming powder. As a result, street prices are remaining fairly stable says Drugscope director Martin Barnes. “What is happening is that dealers are maximising their profits by selling a product that is potentially more harmful and much less pure and a lot of people buying it probably don’t realise that’s what’s going on.”