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The Business of… Illegal Drugs

No one knows its exact scale, but it’s thought to be one of the biggest industries on the planet, amounting to almost 1 percent of global GDP. Kipp takes a look.

November 29, 2010 3:48 by

The market

The drugs industry operates according to the same economic rules as any business. Price is based on supply and demand, and cost of production and transport. But there is one factor that sets the trade apart from other industries: According to a New York University report, “Global demand for an addictive product remains relatively inelastic with respect to price, so short-term price increases due to suppression of production will not reduce demand; demand is likely to remain at or close to current levels.”

In other words, it’s the perfect market for a retailer. Demand remains constant, meaning prices can be raised to maximize profits, even when production and transport costs are low. The only control on price is the need to ensure the product is cheap enough to attract new users.

And they have plenty. The UN estimates that between 155 and 250 million people (3.5 to 5.7 percent of the population aged 15-64) used illicit substances at least once in 2008. Somewhere between 129 – 190 million of those are Cannabis users. Estimates of problem users (those who are dependent) put their figure at between 16 and 38 million worldwide.

Main markets for cocaine are the US and Europe, for opiates West Europe (UK, Italy and France are the biggest offenders) and Russia. Amphetamines are popular worldwide, as is cannabis.


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