How Agricultural Price Shocks Affect Mexico's Drug Trade

The study "From Maize to Haze: Agricultural Shocks and the Growth of the Mexican Drug Sector" (pdf), conducted by academic researchers at New York University, focuses on the dynamics of Mexico's maize farming between 1990 and 2010. It highlights how price fluctuations -- driven by factors such as conditions in other producer countries and international trade agreements -- can adversely affect the viability of domestic production, in turn catalyzing drug production and organized crime activity.

The researchers selected maize as the reference point because of its historical domination of Mexico's agricultural sector. According to the study, maize farming employed at least 29 percent of the country's agricultural workers in 1990, with the second-largest products, coffee and cacao, employing just 4 percent combined. Many of the most suitable regions for growing maize, particularly Mexico's Pacific coastal spine, also coincide with key marijuana and poppy production zones (see maps from study below). The fact that 62 percent of maize farmers (compared to 48 percent overall) were listed as not having a boss or supervisor -- suggestive of family-type operations -- was also significant. Drug crop cultivation is generally overseen by small-scale producers, therefore making a greater proportion of maize farmers ideal candidates for such a switch.

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The research builds around the idea that when maize prices fall, impoverished farmers are more inclined to cultivate illicit crops. It takes drug crop eradication figures as the best indicator of production levels -- based on the assertion by Mexican and US authorities that 75 percent of drug crops are eradicated -- and compares them to historic maize prices.

One of the report's key findings is the consistent negative relationship between maize prices -- which tumbled 59 percent between 1990 and 2005 -- and eradication (see charts from the study below), with spikes in marijuana and poppy eradication in prominent maize growing municipalities.

According to the report, there is also a similar negative relationship between maize prices and cartel presence and killings -- based on aggregated media reports -- with the study stating, "These results suggest that cartels sought to control economically depressed territories where farmers are willing to supply more illicit crops."

In making the connection between maize prices and cartel violence, the study asserts that when crop prices are depressed, agricultural workers become more valuable to cartels because they will accept lower prices for illicit crops, thereby providing cartels with a bigger cut of the market sale price. In this way, the report offers an alternative explanation to the common assertion that economic depression fuels violence by providing a ready pool of combatants for cartels, stating, "We posit that violence rises in our empirical scenario not from the number of fighters, but from the increased value of controlling territories adversely affected by price shocks."

In its conclusions, the report emphasizes the crucial role government policies can have on the drug trade when they lead to price depressions in rural zones suitable for illicit crops, citing the North American Free Trade Agreement (NAFTA) as a specific example and calling for policymakers to "consider the implications of measures such as trade agreements and agricultural reforms on the rural narco-economy."

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Though the observations and conclusions drawn in this study are an eye-opening take on drug violence dynamics, there is perhaps too much emphasis placed on maize as a driver. While the research is thorough in applying controls and variables, to some extent it fails to fully explore how the patterns noted could be intertwined with other factors.

A key point that eludes consideration is the exponential rise of drug crop cultivation noted since former President Felipe Calderon declared war on the cartels in late 2006. While it is entirely feasible that falling maize prices contributed to the decision among farmers to grow opium or marijuana crops, the fact that the concentration of security services in urban areas diminished the risk associated with growing such crops places a fifth of the test period under markedly different conditions. Not only does this offer an alternative driver for drug crop cultivation, but it casts doubt over the assumption that 75 percent of drug crops were eradicated throughout the period -- a cornerstone of the study's methodology.

Another element worthy of greater attention is the development of Mexican cartels over recent decades. While the report gives mention to this, it does not explore it in great depth. As the study highlights, Mexican cartels have evolved from brokers and middlemen for Colombian cartels into Latin America's most prominent organized criminal presence. As they have grown to take a greater share of drug economy profits, Mexican criminal groups have been known to press farmers into drug crop production. This active role instigating drug crop cultivation is somewhat lost in the study, which often seems to depict organized crime passively waiting for macroeconomic conditions to provide the ideal moment to expand operations.

Caution should be taken, too, in accepting that patterns noted through this research supercede commonly held assertions, such as the manner in which economic depression drives violence. Rather than the increased value of drug producing territory offering an alternative theory to the narrative of unemployment serving up foot soldiers to cartels, the two theories are entirely compatible. While the value of drug producing regions may cause a spike in violence, those perpetrating it may or may not be from the area in question. It is quite possible that those dying in key drug crop zones are young males -- as many of the homicide victims of Mexico's violence tend to be -- shipped in from urban centers to do the cartels' bidding. A collation of the ages of victims and origins relative to the murder scene would be a worthy supplement to this study.

Despite these pitfalls, the research is not short of value. As its authors point out, the concept of agricultural commodity prices as drivers of drug crop cultivation and cartel activity is a little studied and underreported phenomenon. The consistent correlations between the likes of maize prices and assumed drug production levels established by the report warrant further exploration, not just from academics, but from policy makers. If, as is suggested, agreements such as NAFTA have played such a direct role in bolstering domestic drug production, the decision making process for any such agreements in the future should include a thorough assessment of the potential effect on the drug economy, something that in the past appears to have been lacking.