Posted on 01/06/2013 8:41:26 AM PST by Kaslin
At Stratfor, we follow Mexico's criminal cartels closely. In fact, we are currently finishing our 2013 cartel forecast, which will be released later this month. As we analyze the Mexican cartels, we recognize that to understand their actions and the interactions between them, we need to acknowledge that at their core they are businesses and not politically motivated militant organizations. This means that although violence between and within the cartels grabs much of the spotlight, a careful analysis of the cartels must look beyond the violence to the business factors that drive their interests -- and their bankrolls.
There are several distinct business factors that have a profound impact on cartel behavior. One example is the growing and harvesting cycle of marijuana in the Sierra Madre Occidental. Another is the industrialization of methamphetamine production in Mexico and the increasing profit pool it has provided to the Mexican cartels in recent years. But when we are examining the transnational behavior of the Mexican cartels, the most important factor influencing that behavior is without a doubt the economics of the cocaine trade.
Cocaine is derived from the leaves of the coca plant, and three countries -- Colombia, Peru and Bolivia -- account for all the coca harvested in the world. Turning coca into cocaine hydrochloride is a relatively simple three-step process. Once the leaves of the coca plant are harvested, they are rendered into what is known as coca paste. From there, the coca paste is processed into cocaine base, which eventually becomes cocaine hydrochloride. The process involves several precursor chemicals: kerosene, sulfuric acid, sodium carbonate, hydrochloric acid, potassium permanganate and acetone. Most of these chemicals are readily available and easily replaced or substituted, making them difficult for authorities to regulate.
According to figures from the U.N. Office on Drugs and Crime, coca farmers in Colombia receive $1.30 for each kilogram of fresh coca leaf. In Peru and Bolivia, where the leaf is air-dried before being sold, farmers receive $3.00 per kilogram.
For the fresh leaf used in processing in Colombia, it takes somewhere between 450 and 600 kilograms of coca leaf to produce 1 kilogram of cocaine base, depending on the variety of coca plant used (some varieties have a higher cocaine alkaloid content). At $1.30 per kilogram, this means that it costs somewhere between $585 and $780 to purchase the coca leaf required to produce one kilogram of cocaine base. One kilogram of cocaine base can then be converted into roughly one kilogram of cocaine hydrochloride, which is commonly referred to as cocaine.
As cocaine progresses from the production site to the end users, it increases in value. According to figures provided by the Colombian National Police, a kilogram of cocaine can be purchased for $2,200 in the jungles in Colombia's interior and for between $5,500 and $7,000 at Colombian ports. But the price increases considerably once it leaves the production areas and is transported closer to consumption markets. In Central America cocaine can be purchased for $10,000 per kilogram, and in southern Mexico that same kilogram sells for $12,000. Once it passes through Mexico, a kilogram of cocaine is worth $16,000 in the border towns of northern Mexico, and it will fetch between $24,000 and $27,000 wholesale on the street in the United States depending on the location. The prices are even higher in Europe, where they can run from $53,000 to $55,000 per kilogram, and prices exceed $200,000 in Australia. The retail prices per gram of cocaine are also relatively high, with a gram costing approximately $100-$150 in the United States, $130-$185 in Europe and $250-$500 in Australia.
Along the supply chain there is also quite a bit of "cutting," which is when substances are added to the cocaine to dilute its purity and stretch profit. According to the Colombian National Police, the purity of cocaine leaving the country is about 85 percent. By the time it reaches the United Kingdom, purity is 60 percent, and it drops further to about 30 percent at the retail level, according to the U.N. World Drug Report 2012.
There has been a thriving two-way flow of contraband goods across the U.S.-Mexico border since its inception. Mexican organized crime groups have been involved in the smuggling of marijuana to the U.S. market since the U.S. government began to restrict marijuana in the early 1900s, and Mexican organized criminals profited handsomely during the Prohibition era in the United States. As U.S. demand for illicit drugs increased in the second half of the 20th century, Mexican organizations branched out to become involved in smuggling other types of drugs, including pharmaceuticals and black tar heroin; poppy cultivation was also introduced to Mexico in the 1930s.
These Mexican organized crime syndicates, such as the Guadalajara cartel, also began to traffic cocaine into the United States in the late 1970s, but for many years the Mexican organizations worked as junior partners for the powerful Colombian cartels in Medellin and Cali. Mexico was a secondary route for cocaine compared to the primary route through the Caribbean. As a result, the Colombians pocketed the lion's share of the profit made on cocaine trafficked through Mexico and the Mexicans received a fee on each kilogram they transported. (However, they did not assume any of the risk of losing shipments between South America and Mexico.)
In the late 1970s and the 1980s -- the early phase of Mexican involvement in the cocaine trade -- Central American middlemen such as Juan Matta-Ballesteros were also heavily involved in the flow of cocaine through Mexico. They moved cocaine from South America to Mexico, becoming wealthy and powerful as a result of the profits they made.
As U.S. interdiction efforts, aided by improvements in aerial and maritime surveillance, curtailed much of the Caribbean cocaine flow in the 1980s and 1990s, and as the Colombian and U.S. governments dismantled the Colombian cartels, the land routes through Central America and Mexico became more important to the flow of cocaine. It is far more difficult to spot and seize contraband moving across the busy U.S.-Mexico border than it is to spot contraband flowing across the Caribbean.
This increase in the importance of Mexico allowed the Mexican cartels to gain leverage in negotiations with their Central American and Colombian partners and to secure a larger share of the profit. Indeed, by the mid-1990s the increasing importance of Mexican organizations to the flow of cocaine to the United States allowed the Mexican cartels to become the senior partners in the business relationship.
In a quest for an even larger portion of the cocaine profit chain, the Mexican cartels have increased their activities in Central and South America over the last two decades. The Mexicans have cut out many of the middlemen in Central America who used to transport cocaine from South America to Mexico and sell it to the Mexican cartels. Their efforts to consolidate their control over Central American smuggling routes continue today.
This move meant that the Mexican cartels assumed responsibility for the losses incurred by transporting cocaine from South America to Mexico, but it also permitted them to reap an increasing portion of the profit pool. Instead of making a set profit of perhaps $1,000 or $1,500 per kilogram of cocaine smuggled into the United States, the Mexican cartels can now buy a kilogram of cocaine for $2,200 or less in South America and sell it for $24,000 or more to their partners in the United States.
But the expansion of the Mexican cartels did not stop in Central America. According to South American authorities, the Mexican cartels are now becoming more involved in the processing of cocaine from coca leaf in Colombia, Peru and Bolivia. There have also been reports of seizures of coca paste being smuggled to cocaine processing laboratories in Honduras and Guatemala. The use of these Central American processing laboratories, which are run by Mexican cartels, appears to be a reaction to the increased efforts of the Colombian National Police to crack down on cocaine laboratories and the availability of cocaine processing chemicals.
U.S. counternarcotics officials report that today the Mexican cartels are the largest players in the global cocaine trade and are steadily working to grab the portion of cocaine smuggling not yet under their control. But the efforts of the Mexican cartels to increase their share of the cocaine profit are not confined to the production side; they have also expanded their involvement in the smuggling of South American cocaine to Europe and Australia and have established a footprint in African, Asian and European countries. Furthermore, they have stepped up their activities in places like the Dominican Republic and Haiti in an attempt to increase their share of the cocaine being smuggled through the Caribbean to the U.S. market. As seen by recent operations launched by U.S. law enforcement, such as Operation Xcellerator, Operation Chokehold and Operation Imperial Emperor, the Mexican cartels have also been increasing their presence at distribution points inside the United States, such as Chicago, Atlanta and Dallas, in an effort to increase their share of the cocaine profit chain inside the United States.
While marijuana sales have always been an important financial source for the Mexican cartels, the large profits from the cocaine trade are what have permitted the cartels to become as powerful as they are today. The billions of dollars of profit to be had from the cocaine trade have not only motivated much of the Mexican cartels' global expansion but have also financed it. Cocaine profits allow the Mexican cartels to buy boats and planes, hire smugglers and assassins ("sicarios") and bribe government officials.
Cocaine is a product that has a very limited and specific growing area. Consequently, that distinct coca growing area and the transportation corridors stretching between the growing area and the end markets are critically important. With a business model of selling cocaine at over 10 times the cost of acquisition -- and even greater over the cost of production -- it is not surprising that the competition among the various Mexican cartels for the smuggling corridors through Mexico to the United States has become quite aggressive.
Read more: Mexico's Cartels and the Economics of Cocaine | Stratfor
Booze kills - and when it was banned, it financed organized crime. So what relevant differences do you claim to see/
Singapore has done a fairly good job.
I do not see any problem with executing drug traffickers or drug users, but then my sister and BIL are addicts being supported by Social Security - that’s our tax dollars at work!
What part of expanding the dope culture contributes to a better society?
Maybe you didn't read what I wrote, but I never said it contributed to a better society. The policy you support has created the drug cartels and hasn't made any dent in the amount of people using drugs. Drugs are simply substances that a part of the population are going to use regardless of what you want.
the routes are already there.
They are also increasingly turning to kidnapping for ransom and home invasions here in the US.
To think that hardened, bloodthirsty criminals, often with felony records/ warrants and little education, will turn to low paid legal employment once their cash cow dies is ludicrous.
So have you contacted the police? Offered to help get the goods on them?
If not, why not? Suppose they murdered someone. Would you remain silent?
DRUG SITUATION REPORT JAN - JUN 2012
CNB REMAINS VIGILANT
- INCREASING DRUG SEIZURES AND SLIGHT DIP IN DRUG ABUSERS ARRESTED
Although there have been a slight dip in the number of drug abusers arrested, the local drug situation remains challenging. CNB remains vigilant and concerned about the local drug situation against the backdrop of increasing drug seizures, a worsening regional drug situation and the large number of repeat drug abusers expected to be released over the next few years. With our continuing tough vigorous enforcement stance, a total of 30 major operations had been conducted in the first half of 2012.
http://www.cnb.gov.sg/drugsituationreport/drugsituationreport1H2012_1.aspx
My sister is now taking time-released morphine on a prescription to contol the pain of fibromyalgia, and controlling the resulting nauseau with marijuana (she has a license to use it legally).
Due to nearly 45 years usage of marijuana and other substances, she is borderline schizophrenic (the Feds politely call it ‘personality disorder’).
So, she is on SSI, considered disabled and has been collecting money from the Feds since age 55. The state of Oregon is providing her with subsidized housing and free medical care - she has had TWICE, year long-treatments for Hepatitus C, both times unsuccessful in stopping the viurs which she contracted from dirty needles. I believe her condition to be self-caused, by her behavior.
The police know all about her, including her sexual abuses of her son when he was a minor.
If my sis and BIL had murdered someone I would NOT remain silent and would gladly turn them in.
These people abandonned their son. My folks and myself were awarded custody by a court.
I have tried to help him deal with the memories of the emotional abuse that young lad sustained because of his mother and her druggie boyfriends.
Death is deserving to those who use drugs and physically and sexually abuse a 4-year old child.
The article also fails to explain gravity.....are you floating?
In Colorado cartels are forcing immigrants to harvest their grow sites in Nat’l forests, using death threats against their families.
Additionally, the typical “protection” visits are being made to the “medical mj” shops.
I’m getting this directly from LEOs.
Don’t expect a sympathetic press to write about it any time soon.
Your theories regarding “lower prices, due to increased competition” does NOT reflect any understanding of the article or the cartels.
“if they could get it from the producers at $1000 per pound”
Assumes facts not in evidence!
Not to mention pure ignorance of cartels.
A wider variety of poisons, with stronger and more immediate addictive qualities is always a good thing for society......
Anything to undermine a productive, God fearing culture I say....
It would take a police state.
Singapore has done a fairly good job.
Like I said. I prefer the limited government envisioned by the Founders - but then, I'm an American conservative.
I do not see any problem with executing drug traffickers or drug users, but then my sister and BIL are addicts being supported by Social Security - that’s our tax dollars at work!
So oppose that big-government abuse - don't use it to rationalize even more big government.
Those who try to compare alcohol with drug usage forget that you can drink alcohol without the desire to get high.
Evidence? The article doesn't say this.
In Colorado cartels are forcing immigrants to harvest their grow sites in Nat’l forests, using death threats against their families.
Additionally, the typical “protection” visits are being made to the “medical mj” shops.
All of that doesn't add up to 'maintaining control in the “medical mj” market' as you claimed. And if “protection” is profiting them to any significant degree, it's because medical marijuana is still against federal law and thus directly and indirectly denied protections available in markets for other goods.
Your theories regarding “lower prices, due to increased competition” does NOT reflect any understanding of the article
What in the article do you claim contradicts it?
or the cartels.
They're no more immune from the laws of economics than from the laws of gravity.....are they floating?
Death is deserving to those who don't use drugs and do physically and sexually abuse a 4-year old child.
It doesn't in any way follow that death is deserving to those who use drugs and don't physically and sexually abuse a 4-year old child.
Which doesn't say much for the idea that laws can significantly affect drug usage.
Those who try to compare alcohol with drug usage forget that you can drink alcohol without the desire to get high.
Hardly anyone drank alcohol without the desire to get high when that drug was illegal.
Booze kills - and when it was banned, it financed organized crime. So what relevant differences do you claim to see?
A wider variety of poisons, with stronger and more immediate addictive qualities is always a good thing for society......
Anything to undermine a productive, God fearing culture I say....
Nothing in your post addresses your previous implied claim about alcohol. And note that it's the War On Drugs that has incentivized a wider variety of poisons, with stronger and more immediate addictive qualities - both because new drugs enjoy a window of legality, and because the stronger the drug the easier it is to conceal an enough-to-get-high amount.
Are you intentionally being thick here? I will cut a section of the article out for you:
At $1.30 per kilogram, this means that it costs somewhere between $585 and $780 to purchase the coca leaf required to produce one kilogram of cocaine base. One kilogram of cocaine base can then be converted into roughly one kilogram of cocaine hydrochloride, which is commonly referred to as cocaine.
Why would it be more than $1000 per pound if it was legal to buy and sell in the United States? You are taking all of the risk out of shipping the product if it becomes legal in the US. And as we all know, high risk equals high reward, low risk equals low reward. If the cartle's number one cash source dries up they will not be able to function.
The cartels are not ignorant, they are billion Dollar businesses and run by smart people.
I’ll explain S L O W L Y for you....
The cartels will back their control up to the first leaf, and it’s price will inflate at the source, such that their net income is not reduced.
The sources are LIMITED, and will continue to be controlled by the cartels.
"Limited" to three countries. That the cartels can control 1.3 million square miles assumes facts not in evidence.
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