A Rural Economic Development Plan To Help The USA Win Its War On Cocaine

Oxfam GB
A rural economic development plan to help the USA win its war on cocaine
Author(s): Jason Spellberg and Morgan Kaplan
Source: Development in Practice, Vol. 20, No. 6 (August 2010), pp. 690-705
Published by: Taylor & Francis, Ltd. on behalf of Oxfam GB
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Development in Practice, Volume 20, Number 6, August 2010 iRoutledge
Taylor & Francis Croup
A rural economic development plan

to help the USA win its war on cocaine
Jason Spellberg and Morgan Kaplan
Since the 1980s, the USA has fought cocaine in the Andes with carrots and sticks: interdiction
and crop eradication wield the sticks, while Alternative Development (AD), which offers econ
omic assistance to farmers who voluntarily abandon illicit cultivation, provides the carrots. Yet
cocaine continues to permeate US streets, and rural Andean communities remain isolated from
the legitimate economy. Many critics blame US belligerence for compounding the Andean drug
war. The underlying problem with the existing strategy, however, might not be the aggressive
ness of its military sticks, but the flimsiness of its development carrots. The inability of AD
to persuade farmers to abandon coca cultivation may be causing US policy makers to
over-apply military solutions - often inflaming rural communities and exacerbating regional
instability in so doing. Few legal crops can match the earning power of coca. The article
therefore suggests that the US carrot could be made more attractive by adopting a Venture
Development model which helps rural farmers to process their legal produce into high
quality finished goods that command premium prices. Such a strategy could conceivably
choke the cocaine engine by applying market-based forces to address market-based realities.
Un plan de developpement economique rural pour aider les Etats-Unis ? gagner la guerre
contre la cocaine
Depuis les annees 1980, les Etats-Unis menent une lutte contre la cocaine dans les Andes au
moyen de carottes et de batons : Vinterdiction et Veradication des cultures constituent les
batons, tandis que le developpement alternatif (Alternative Development - AD), qui offre
une assistance economique aux cultivateurs qui abandonnent volontairement la culture illicite,
fournit les carottes. De nombreux critiques accusent la belligerance des Etats-Unis d'avoir
aggrave la lutte antinarcotique dans la region andine. Le probleme sous-jacent avec la Strate
gie existante, cependant, n'est peut-etre pas Vagressivite de ses batons militaires, mais lafai
blesse de ses carottes de developpement. Uinaptitude de VAD ? persuader les cultivateurs
d'abandonner la culture de la coca pousse peut-etre les decideurs americains a appliquer
excessivement des solutions militaires - attisant ainsi la colere des communautes rurales et
exacerbant Vinstabilite regionale par la meme occasion. Rares sont les cultures legales qui
presentent le potentiel remunerateur de la coca. Cet article suggere que la carotte des
Etats-Unispourrait etreplus interessante s'Us adoptaient un modele de developpement d'entre
prise qui aide les cultivateurs ruraux ? transformer leur production legale en marchandises
finies de qualite qui se vendent aux meilleurs prix. Une teile Strategie pourrait en theorie
etouffer le moteur de la cocaine en appliquant des forces de marche pour aborder des realites
de marche.
690 ISSN 0961-4524 Print/ISSN 1364-9213 Online 060690-16 ? 2010 Taylor & Francis
DOI: 10.1080/09614524.2010.491525 Routledge Publishing
A rural economic development plan for the war on cocaine
Um piano de desenvolvimento econdmico rural para ajudar os EU A a veneer sua guerra

contra a cocaina
Desde a decada de 1980, os EU A tern lutado contra a cocaina nos Andes com incentivos e puni
g?es: interdig?o e erradicag?o de plantag?es como punig?o, e o Desenvolvimento Alternativo
(AD), que oferece assistencia economica aos produtores rurais que voluntariamente abando
nam o cultivo ilicito, como incentivo. Muitos criticos culpam a beliger?ncia dos EU A por
aumentar a guerra das drogas andina. O problema que estd por trds desta estrategia atual,
porem, pode nao ser a agressividade de suas punig?es militares, mas a fragilidade de seus
incentivos de desenvolvimento. A inabilidade do AD para persuadir os produtores rurais a
abandonar o cultivo da coca pode estar fazendo os formuladores de pol?icas dos EU A a
aplicar solug?es militares em excesso - frequentemente incitando comunidades rurais e
exacerbando a instabilidade regional ao fazer isto. Poucas colheitas legais podem promover
o mesmo poder aquisitivo que o da coca. O artigo, portanto, sugere que os incentivos dos
EU A devem se tornar mais atrativos, adotando-se um modelo de Desenvolvimento de Iniciativa
que ajude os produtores rurais a processar seus produtos legais em mercadorias finais de alta
qualidade que proporcionem pregos mais altos. Tal estrategia poderia de forma concebivel
sufocar a m?quina da cocaina aplicando-se as for gas de mercado para lidar com as realidades
de mercado.
Un plan econdmico de desarrollo rural destinado a apoyar la guerra contra la cocaina en

EEUU
Desde los anos 80, los EEUU han librado una guerra contra la cocaina en la region andin
usando zanahorias y garrotes: los garrotes son la prohibicion y erradicaei?n de los cultivo
la zanahoria es el Desarrollo Alternativo (DA) - asistencia economica para campesinos que
voluntariamente dejan de cultivar enervantes. Para muchos criticos, la beliger?ncia de
EEUU ha recrudecido la guerra antidrogas en la region andina. Sin embargo, el problem
defondo de la estrategia actual puede radicar no tanto en la violencia de los garrotes militares
sino en la insuficiencia de las zanahorias. El poco entusiasmo entre los productores de coca por
el DA puede haber provocado una excesiva respuesta militar de EEUU, aumentando el eno
entre los productores y la inestabilidad en el campo. Existen pocos cultivos tan redituabl
como la coca. El ensayo sugiere que la zanahoria podr? resultar mas atractiva utilizando
modelo Venture Development (desarrollo empresarial) que facilita la transformacion de l
cultivos Hcitos en productos acabados de m?s alta calidad y, por tanto, de precio final m
elevado. Esta estrategia podria detener el trdfico de cocaina al aplicarse mecanism
basados en el mercado para transformar una realidad tambien fundada en el mercado.
Key Words: Aid; Civil society; Globalisation; Governance and public policy; Latin America and th
Caribbean; North America
Endless escalation
A brief history of US counter-narcotics intervention in the Andes will help to illustrate the
extent to which existing policies have failed, and why an improved development strateg
might hold the key to fixing them.
The Andean Counter-drug Initiative (ACI), the official name for the US supply-side an
cocaine policy, comprises three distinct tactical activities: interdiction, forced eradicatio
and Alternative Development (AD). Most of the controversy surrounding the ACI has be
Development in Practice, Volume 20, Number 6, August 2010 691
directed at forced eradication. Critics contend that indiscriminate destruction of coca planta
tions is unwarranted, since most coca farmers do not produce or traffic cocaine. US policy
makers, however, have long advocated source targeting as a sensible means to curb cocaine
supply, asserting that it is easier to destroy a fixed, one-hectare coca plantation than it is to inter
cept, once in transit, the three to ten kilograms of cocaine per year that the plantation is capable
of yielding (Vargas 2005).
But while this logic makes sense in theory, in practice the ACI has failed to reduce cocaine
availability. Since the early 1980s, intensified US-sponsored eradication campaigns have con
sistently generated an equally determined counter-offensive from coca growers and drug traf
fickers. This so-called 'balloon effect' describes the tendency for military crackdowns in one
sector to cause the unwanted behaviour to pop up in others (Reel 2006; Shifter 2004).
The balloon effect convincingly explains the ACI's failure to reduce cocaine productivity.
For example, before the mid-1980s the world's entire cocaine supply was generated in
Bolivia and Peru, then trafficked to overseas markets via Colombia. But US-funded source
eradication programmes were initially so 'successful' that they promptly pushed large-scale
cultivation north into Colombia (Reel 2006). Guerrilla organisations such as the Revolutionary
Armed Forces of Colombia (FARC) readily consolidated control over these new coca planta
tions and processing labs - an achievement facilitated by another pyrrhic victory: the US
assisted defeat in 1993 of the FARC's principal rival, the Medellin drug cartel (Peceny and
Durnan 2006). This did the exact opposite of stemming Colombian cocaine trafficking,
instead helping the FARC to consolidate an astounding productive capacity. By 1997, Colombia
had surpassed Bolivia and Peru to become the world's top producer of cocaine (UNODC
2007b).
Intending to help Bogota to contain this mess, in 1999 the Clinton Administration launched
a bilateral anti-narcotics endeavour known as Plan Colombia. This US$6 billion assistance
programme aimed to exterminate Colombian drug production and trafficking by helping the
government to achieve an unconditional victory in the country's 45-year armed conflict.
Admittedly, Plan Colombia has achieved some impressive successes. Bogota has consolidated
its political authority, largely by strengthening the police and military with new recruits,
equipment, and training. Improved security in the major cities is attracting tourism and
foreign investment. Despite serious political and social consequences, now the subject of
intense controversy, much of the country is enjoying a level of stability perhaps unknown
since before La Violencia of the 1950s.
But even as headway is being made in ending the armed internal conflict, Plan Colombia has
failed to appreciably reduce the country's cocaine output. A telling illustration is that since 2000
the Colombian Air Force, using a fleet of US-supplied planes and helicopters, has sprayed more
than 830,000 hectares of coca bush with the chemical defoliant 'Round-Up Ultra' (Isacson
2006; UNODC 2007b). Although Colombia's total coca-cultivation area almost halved
between 2000 and 2003, no further reductions have been achieved since then - despite the
fact that spraying intensified every year thereafter (UNODC 2007b). Growers probably
figured out how to scale down and disperse their plantations among natural foliage and/or
licit crops, i.e. by relocating to thick jungles, steep hillsides, and other areas providing
shelter from satellite imagery and aerial bombardment (Associated Press 2006; Deletroz
2005; UNODC 2007b; Vieira 2006). In other words, forced eradication has prompted a domestic
balloon effect - a claim supported by the observation that while in 2000 only 12 Colombian
departments were major coca producers, 20 are today (Contreras 2005; UNODC 2007b).
Colombia's balloon effect has not been limited to geographical diversification. Recent evi
dence suggests that the principal warring insurgent factions - the leftist rebels and the right
wing paramilitaries - have begun to co-operate in the cocaine trade, with the former controlling
692 Development in Practice, Volume 20, Number 6, August 2010
coca cultivation and processing into cocaine-base, and the latter overseeing both the refinement
of cocaine-base into cocaine and its distribution via sophisticated, multinational drug cartels
(BBC News 2008; Deletroz 2005). This startling collaboration between the ideologically
opposed adversaries of the Western hemisphere's longest-running armed conflict may well
be a survival response to the tighter operating environment imposed by Plan Colombia.
Taken together, these observations suggest that the ACI is elevating an elaborate stalemate to
even higher levels of complexity. Tactical disappointments, such as the coca productivity
rebounds since 2003 (UNODC 2007b), demonstrate that fumigation did not cause farmers to
abandon illicit behaviour out of 'despair', as many US experts originally claimed (Economist
2003), but rather forced the cocaine engine to react and innovate in order to continue satisfying
demand for its product. US strategists seem to be ignoring a key lesson of the prohibition of
alcohol in the 1920s: applying coercion alone to stamp out illicit behaviour can be extremely
problematic, especially when such behaviour is being fuelled by average price mark-ups of
nearly 15,000 per cent from farm to street.1 The record-breaking narcotics seizures achieved
by law enforcement in recent years (UNODC 2006; UNODC 2007b) could be the next casualty.
In all likelihood, traffickers will eventually adjust to the enhanced environment of international
law-enforcement co-operation, which the United Nations Office on Drugs & Crime credits for
the achievements (UNODC 2006).
Given the patchy US track record, strategists should not assume that an unconditional mili
tary defeat of Colombia's insurgents will necessarily constrict the country's cocaine output.
Plan Colombia lacks a rural development strategy capable of integrating the country's hundreds
of thousands of coca farmers and internally displaced persons into the legal economy. As such,
entrenched paramilitary groups and organised crime syndicates could find contraband cultiva
tion quite easy to commandeer in a post-war Colombia - thereby ensuring the survival of one of
the world's most prodigious narcotics economies. Moreover, the sheer aggressiveness of forced
eradication may be preventing economic and political integration on a psychological level. For
example, mounting evidence suggests that chemical fumigation is severely damaging subsis
tence crops, the natural environment, and the physiological health of rural populations
(Sherret 2005; Vargas 2005; Vieira 2006). Some have even accused the Colombian government
of using defoliants to force indigenous communities off lands that have been secretly designated
for petroleum extraction (Tenthoff 2007). Even if such allegations were completely false, Plan
Colombia seems to be doing little to dispel the negative perception.
Thanks to an on-going balloon effect, the cocaine war remains as deadlocked today as it was
25 years ago. If US strategists are really serious about breaking the stalemate, they will have to
attract the co-operation of Andean farming communities. And this will mean tempering the
tough negative incentive of forced eradication with positive incentives that convince rural
farmers enthusiastically to abandon coca. Success may depend on building constructive partner
ships for community development, and heeding lessons learned from the failures of AD.
In pursuit of mediocrity
Since the mid-1980s, US Alternative Development programmes have offered infrastructure
such as roads, bridges, schools, and irrigation systems - as well as seeds, agronomic training,
and markets for boosting the agricultural productivity of licit crops - to Andean farming com
munities that agree to abandon coca cultivation.
Of course, as a strategic priority, AD is less emphasised than interdiction and eradication -
although not to the extent that many critics contend. While the US government has substantially
militarised the ACI since 1999 (Lobe 2003), AD has also been bolstered. In 2006 alone, US AID
spent almost US$163 million on AD projects in Bolivia, Peru, and Colombia - approximately
equivalent to one quarter of all ACI expenditures (Veillette et al 2006). Broken down by
country, AD allocations equalled US$37 million, US$43 million, and US$83 million - or
about 46, 40, and 18 per cent of total ACI spending - in Bolivia (Ledebur et al 2007), Peru
(USAID 2005b), and Colombia (USAID 2006), respectively. So although AD has not been
the top-priority ACI component, it has certainly enjoyed ample opportunity to reduce
cocaine production.
The extent to which it has actually done so, however, is questionable. Some AD proponents
have credited crop-substitution programmes for achieving an overall 29 per cent decrease in
coca-cultivation area throughout the Andes since 2000 (UNODC 2005; UNODC 2007b). But
there are two persuasive grounds for rejecting this assertion. First, this reduction was not
truly regional in character. In fact, the coca-cultivation area during this period declined only
in Colombia, where US funding for AD has always been lowest, relative to total ACI expendi
tures. In Peru and Bolivia, where AD has been a much more robust component of US counter
narcotics interventions, coca hectares have, if anything, expanded since 2000 (UNODC 2007b).
Second, the entire 29 per cent decline was actually achieved between 2000 and 2003 (UNODC
2007b) - the period coinciding with the launch of aerial spraying campaigns in Colombia. It
therefore seems unreasonable to attribute any of these hectare reductions to AD. After all, if
AD had really made a potent contribution, cultivation decreases would have been recorded
in Bolivia and Peru as well as in Colombia beyond 2003. Chemical eradication rather than
AD probably deserves the credit for this achievement (which, as previously noted, proved to
be unsustainable).
Of course, it is possible that AD is at least preventing cultivation from spreading. But this is
unlikely, given that retail cocaine availability seems historically to mirror street demand (Cost
of Prisons 2005; PMUK 2003; UNODC 2007b; USDEA 2006). In fact, both global cocaine
supply and prices have been drifting steadily downwards since the late 1980s (PMUK 2003;
UNODC 2007a; USDOS 2001), a situation that can mean only that global consumption is
also declining. In other words, cocaine availability seems to be 'contained' not by the ACI
or any of its components (Contreras 2005; Shifter 2004), but by demand itself. Diminishing
cocaine abuse in the USA - which remains the world's largest market for the drug - has prob
ably been a far more important factor in capping supply than has AD (ONDCP 2008; UNODC
2007a; USDEA 2006; USDOS 2001).
If AD is not affecting the availability of cocaine, then by definition it is failing to provide
Andean farmers with a viable income-generating alternative to coca on a systematic basis.
Over the past 25 years, US AD programmes may have helped to wean a total of perhaps
50,000 Andean families off coca leaf as a primary cash crop - but there are at least 100,000
more coca-producing families whom AD has not affected. Moreover, many of the 50,000
families being 'effectively' targeted by AD still produce coca as a secondary or tertiary cash
crop, even though they are contractually obliged not to do so.2 A 2005 self-assessment of US
AD activities in Peru explains the difficulty in ensuring community compliance with coca
reduction commitments, and concedes that benefits may have been distributed to communities
that did not fully abandon the crop (USAID 2005b). These challenges help to explain why in
2004 USAID-Peru lowered its cultivation-reduction target from 8000 to 2700 hectares, and
then only slightly increased the 2005 target to 3000 hectares (USAID 2005b). The fact that
3000 hectares represented only six per cent of Peru's coca-cultivation area at the time under
scores the inherent limitations of AD to substantially transform communities - and, hence,
to appreciably reduce cocaine production.
Ultimately, the most favourable evaluation that an objective 20-year audit could possibly
deliver is that AD may have helped tens of thousands of Andeans to earn a more secure, and
sometimes slightly better, living; but that it has, at best, only marginally stemmed cocaine
supply - perhaps by indirectly pressuring street dealers to occasionally reduce purity.3 More
over, this mediocre performance has probably not been caused by lack of resources committed
to AD, but by intrinsic flaws in its strategic design.
Where is the carrot?

The essential rationale for development assistance is to help beneficiary communities to lever
age their own productive capacities to generate wealth independently, such that they can even
tually finance their basic on-going needs without external intervention.
AD, however, treats impoverished Andean communities not as partners in a wealth-building
collaboration, but as mere recipients of aid. This flaw in its approach is exemplified by US AID's
contention that the chief indicator of success in AD is the quality of local governance, and that
economic and social variables do not predict effectiveness, i.e. the extent to which an agricul
tural community will permanently uproot its coca (USAID 2001; USAID 2002). While this
claim may be true, the fact that it is true is what underscores AD's ineffectiveness: first, very
few Andean coca-growing communities inherently exercise the high-quality governance that
AD requires, which obviously limits its reach; and second, if AD cannot at least indirectly
promote this good governance, then it is probably the wrong strategy to be applying anyway.
Of course, it is unrealistic to expect that an entrenched tradition of accountable, representa
tive government can be externally provided for any community from the top down. A crop
substitution programme must therefore act from the bottom up to present clear and compelling
economic incentives for individual farmers to change the way in which they earn a living. But
because AD offers no such incentives, it hinges its own success on the /?re-existence of effective
governance - hence USAID's conundrum.
The fundamental weakness of AD is that it applies a political solution to a problem - cocaine
production - that is essentially economic. It effectively comprises a diplomatic transaction in
which donors offer seeds, training, social services, and infrastructure in exchange for a collec
tive promise to stop cultivating coca leaf. But such handouts are untenable as a means of bring
ing about fundamental behaviour change, because they fail to help impoverished farmers to
create substantial wealth in an independent and self-sustaining manner. Simply installing infra
structure and supplying seeds and agronomic training is not good enough, because recipients are
still forced to depend on low-value commodity crops to generate income - if such crops can be
sold at all. In other words, even when AD significantly helps to improve agricultural pro
ductivity - and even in the rarer cases when it actually creates an enduring market for legal
produce that did not exist previously - the revenue generated at the farm gate cannot typically
match the earning power of coca leaf, as shown in Table 1.
Table 1 unequivocally exposes the stark challenge facing AD: coca offers Andean farmers
much more revenue per hectare than do most legal crops - even assuming fair-trade pricing.
In fact, even if all eight licit crops listed in Table 1 are optimally cultivated, given the realistic
capabilities of a typical Andean smallholder, only three - banana, mango, and pineapple - can
be expected to out-perform coca leaf; and even then, only when coca is swft-optimally culti
vated.
Even more telling, the Table 1 comparison assumes that all Andean agriculture is equally
marketable, which is not the case in practice. In fact, coca leaf is commonly sold in an easily
preserved, sun-dried state - unlike bananas, mangos, and pineapples, which consumers gener
ally prefer fresh, and which require costly equipment to preserve. Superior productivity is
another factor driving coca's popularity: the bush grows quickly, and a mature plantation can
provide four harvests per year (Contreras 2005). Oil-palm, rubber, and teak, by contrast, are
slow to mature, and may not yield four harvests per decade.
Table 1: Comparing commodity agriculture*
Potential annual farm-gate revenue (US$) generated by a 1-hectare coca-bush plantation, by country
Bolivia Colombia Peru
Average $6810 $6270 $5500
Range $4760-$10,700 $4000-$9000 $2150-$9000
vs. a 1-hectare plantation of select licit crops commonly grown in the Andes
Average Range
Banana/plantain $3380 $1000-$5220
Cocoa bean $780 $440-$1230
Coffee (green Arabica) $770 $460-$1720
Mango $2440 $370-$6100
Palm oil $1100 $540-$2070
Pineapple $3890 $650-$5300
Rubber $1000 $670-$1930
Teakwood $820 $400-$1160
*All figures approximate annual revenues for mature, non-organic plantations, based on fair-trade farm
gate prices and on low, average, and high yields realistically achievable by Andean smallholders.
Very few legal crops are capable of offering smallholder farmers a consistent revenue sub
stitute superior to coca leaf.4 Andean farmers therefore have persuasive economic incentives
not to uproot their coca. Indeed, even when they do eliminate coca as a primary crop, its
impressive earning power ensures that it will seldom be abandoned entirely. And as if the situ
ation was not bleak enough already, AD now confronts yet another economic hurdle: some
Andean farmers are discovering that they can boost their income even more by processing
their coca leaf into cocaine-intermediary products (CIPs), as shown in Table 2.
Due mainly to the compelling economics of value-add, nearly two-thirds of all Colombian
coca farmers now process the leaves that they grow into coca paste or CIPs (UNODC
2007b). This alarming statistic further reinforces the view that on-going militarisation of US
drug policy is causing narcotics production to disperse - and not just geographically. Although
a strong economic incentive to diversify into CIPs has not yet wooed farmers in Bolivia or
Peru,5 the balloon effect, combined with rising drug abuse in Europe and Latin America,
Table 2: The illicit value-added chain for coca-leaf processing
Average annual potential revenue (US$) and value-add (%) generated by processing an entire
1-hectare coca-leaf harvest in Bolivia, Colombia, and Peru
Bolivia Colombia Peru
Revenue Value-add Revenue Value-add Revenue Value-add
Coca leaf $6810 $6270 $5500
Coca paste $3590 -47% $8980 +43% $3490 -30%
Cocaine-base $4190 -39% $9890 +58% $3910 -23%
Cocaine-HCl* $7540 + 11% $15,110 + 141% $7460 +36%
*Pure cocaine; not typically produced by farmers (UNODC 2007b).
could conceivably create one (ONDCP 2007; PMUK 2003; USDOS 2001).6 So while USAID
handouts offer Andean farming communities little more than prolonged dependence on com
modity cash crops with meagre earning power, the balloon effect threatens to lure ever more
farmers up the criminal value-added chain.
In addition to its inability to address coca's considerable economic appeal, AD may be
plagued by a second serious flaw: far from providing a clear positive incentive for farming
communities to abandon coca, AD may actually be creating perverse incentives that all but
ensure that they never really do. For example, when USAID offers conditional subsidies to
coca-producing communities, this might instigate a self-defeating prophecy whereby other
farmers who aren't growing coca could consider planting it in order to entice USAID to pay
their communities not to produce it. This strategic weakness in AD as an effective development
tool may also weaken tactical implementation by disseminating corruption and undermining the
good governance that USAID insists is so critical for success in the first place. Indeed, some
cocaleros have accused USAID contractors of corruption (Gomez 2004).
USAID has acknowledged that exchanging cash payments for an agreement to abandon
coca cultivation does not ultimately modify behaviour (USAID 2001). But the agency seems
unwilling to recognise that providing handouts in the form of training, seeds, etc. is probably
no different. And while USAID now imposes more stringent qualifications in order to
receive benefits, this offers no solution either, because reduced engagement certainly does
not change behaviour. Andean communities simply revert to coca - if they had even abandoned
it to begin with - and then complain that donors refuse to take their development needs into
consideration (Smith 2004; Vieira 2006).
Not carrots, but carrot cake

The political tit-for-tat arrangements for AD do not help rural farmers to integrate into the legit
imate global economy. What a US drug policy needs in the twenty-first century is therefore not
Alternative Development, but Venture Development: a strategy which offers impoverished
farmers attractive and enduring economic incentives to earn a lawful living.
The key to Venture Development is helping Andean agricultural communities to overcome
the chief obstacle preventing their participation in the licit marketplace: 'default' economic
dependence on legal cash crops that have little value in that marketplace. The key word here
is value\ programmes that merely help rural farmers to tap fresh-produce markets - even
premium ones - are unlikely to have an appreciable impact on coca cultivation, because the
revenue per hectare is simply too low. As we saw in Table 1, even fair-trade pricing does
not enable Andean fresh produce to compete economically with coca leaf - let alone cocaine.
To trump cocaine at the farm gate, a development programme must empower communities
not just to grow licit crops, but also, before they are ever brought to market, endow them
with significant value-add. Specifically, this means helping communities to locally produce,
package, and brand finished goods (or at least partially finished goods) made from legal food
and agro-forestry crops. So while AD offers rural communities a carrot, Venture Development
would encourage them to grow their own carrots, then enable them to process those carrots
into carrot cake - and sell that to the world! The real essence of Venture Development is
therefore offering agricultural communities an escape from the commodity 'trap', as illustrated
in Table 3.
Table 3 illustrates the logic behind applying value-added to licit produce in order to help it to
compete economically with coca leaf. Whereas none of the five input crops listed in Table 3
could typically match coca's earning power when sold fresh, all can significantly surpass it if
processed into refined consumer goods - four of them by exceptionally wide margins. Even
Table 3: Comparing coca leaf with licit value-add products
Potential annual farm-gate revenue (US$) and economic value-add (%) generated by a 1-hectare
plantation capable of processing its entire harvest into a finished, value-add good
Value-add product Average Value-add* Revenue range
Coca leaf* $5500 $2150-$9000
Banana Dried banana splits $10,780 220% $4490-$18,480
Cocoa Dark chocolate bars* $15,430 1880% $11,670-$19,950
Coffee Espresso coffee soda $6320 720% $3800-$! 1,690
Mango Mango jam $14,950 510% $4530-$24,380
Teak-wood Teak-wood floor panels $13,140 1600% $4380-$19,710
* Revenue increase over the fair-trade earning power of the associated licit crop.
**Fresh Peruvian coca leaf, shown for comparison.
***Product contains 100% organic farm inputs.
the crop with the weakest earning power in Table 1 - Arabica coffee - can easily vie with coca
when fashioned into a product like espresso soda. Thus, it is plausible to expect that a develop
ment strategy that imparts value-added to licit produce can substantially reduce (if not entirely
eliminate) an Andean farming community's economic affinity for coca leaf. Note that if such a
strategy were implemented today in Bolivia or Peru, it would not be necessary for the value
added products to out-compete cocaine derivatives, since there is currently no compelling econ
omic incentive for farmers in those countries to produce CIPs (UNODC 2007b). However, this
situation may change; indeed, it probably will. As such, the merits of an agricultural substitution
strategy based on value-added processing should be tested now, while the economics are still
feasible.
'Chateau Quillabamba'
The revenue comparison presented in Table 3 suggests that Andean smallholders could earn
more by growing and processing licit harvests into premium finished goods than they can by
selling coca leaf on the black market. Thus, value-added processing could theoretically be
the cornerstone of an effective coca-reduction strategy.
Since distributing high-tech processing and packaging equipment - and the training to
operate it - to tens of thousands of individual coca farmers would be impractical, what is
needed is a plan for centralising these capital-intensive, high economies-of-scale activities,
and then redistributing the profits earned throughout the host community.
In Peru, Carlos Valencia Miranda, the former Mayor of Cusco, has proposed the agricultural
area of Quillabamba as an ideal staging ground for such a pilot project.7 Situated in a lush valley
about 40 km north-west of Machu Picchu, Quillabamba is capable of producing an enormous
variety of tropical agriculture. Nevertheless, low-quality coca leaf (the kind ideal for processing
into cocaine) remains the region's staple crop.
According to Valencia, Quillabamba's reliance on coca is primarily economic. He therefore
suggests that USAID should broker financing for the construction of a high-tech, industrial
scale processing plant, capable of converting the agricultural output of Quillabamba's scores
of individual farming communities into finished, value-add goods. Modelled on a US or
European winery, the facility would be organised into a community-owned and operated co
operative that collectivised value-added production into a central hub. A purchasing guild
would buy fresh inputs from the area's farmers, who, as co-op members, would supply the facil
ity with large quantities of high-quality produce. In exchange, the guild would provide agro
nomic inputs to help farmers to boost their quality and yield.
In order to ensure that members received more income per hectare for their licit crops than
they could possibly earn from coca leaf, the guild would inflate farm-gate prices far beyond fair
trade levels. This would be possible by redistributing the revenues earned from value-added
sales. Unlike the fair-trade approach, such a scheme would not involve price controls.
Instead, members would receive a 'wage', based on a multiple of quantity and quality produced.
As long as the co-op generated the necessary revenues, it could disburse these wages in a self
sustaining manner without causing market distortions. Contributors would therefore want to
abandon coca - and they would continue to abandon it for as long as the co-op maintained
the capacity to procure, process, and re-sell all the licit produce that they could possibly grow.
At the centre of the co-op would be a mechanised, industrial-scale manufacturing plant
capable of converting fresh inputs into exotic, innovative, and premium finished goods, such
as tropical marmalades, energy bars, cereals, yogurts, juices, soda drinks, and cookies. It
might also produce non-food items such as luxury soaps and lotions made from palm oil, or
fine parquet flooring and/or furniture made from tropical agro-forestry crops like teak. It
would then transport these finished goods through a modern packaging and shipping
complex. A professional commerce board would administer the co-op's product line; manage
its cash flows, debts, and equity disbursements; and direct its long-term business development.
Just like a winery, the co-op would produce, package, and label its products in-house before
selling them to overseas retailers at market-determined wholesale prices. Products would be dis
tributed under a recognisable label and brand name, such as 'Chateau Quillabamba' - some
might even receive a vintage! But as compelling, high-quality consumables, Chateau Quilla
bamba's merchandise could attract premium pricing, since it would be grown and processed
organically, and then packaged, labelled, and shipped with a seal and logo stating something
like: 'Proudly Made in Quillabamba, Peru - as a Substitute for Cocaine'. If marketed to
the right clientele, the co-op's products could attract mark-ups well beyond those shown in
Table 3.
In fact, a successful Venture Development project might even be able to drive many of the
host community's 'down-stream' development needs. For example, the launch of a successful
agro-industrial complex in the heart of an impoverished farming community might boost not
only much-needed employment, but also high-skilled employment. The ensuing demand for
labour could further motivate the community to invest in education. In addition the co-op
could generate substantial tax revenues for provincial and federal governments, providing a
compelling feedback incentive to facilitate the community's on-going development, i.e. via
infrastructure improvements, R&D programmes, preferential trade/export agreements, and
sensible regulatory oversight. In this way, Venture Development could also indirectly
promote the responsiveness and accountability of local governance - something that on
USAID's own admission AD has largely failed to do in more than 20 years.
Putting the Venture' in development

Venture Development requires target communities to take active ownership of the projects that
they host. Thus, rural villages would have to co-operatively but independently administer a
large, modern business and succeed in making it highly competitive, with neither the expertise
nor the capital to do so. Although aid agencies like USAID might co-ordinate necessary assist
ance, any support would have to come in the form of an investment partnership - not a handout.
If the community itself is not the project's principal stakeholder, then profound economic
transformation - and significant coca reductions - will remain elusive.
Luckily, there are precedents for an endeavour like Chateau Quillabamba. The African
Development Bank (AfDB), for example, has been supporting value-added components in
several major projects, including a rural, community-operated oil-palm facility in Ghana,
which produces not just oil but also premium, organic palm-based margarines and soaps
(AFDB 2006a). The AfDB has also financed an ambitious community agro-forestry project
in Liberia which can process palm oil, cocoa, coffee, coconut, and various tropical fruits into
an assortment of finished edible goods (AFDB 2006b). Similarly, the Asian Development
Bank (ADB) has been helping farming communities in South-east Asia to process cocoa
beans into intermediary chocolate products, which they then sell to US distributors - who
welcome the dependable, high-quality supply.8 In fact, in an effort to diffuse risk, acquire
high-quality technical expertise, link producers directly to premium overseas buyers, and
promote the kinds of mutually beneficial gains that yield true sustainability, all of the above
mentioned projects are being co-financed with private-sector entities.
Many joint NGO-corporate operations have been just as active. A private investment con
sortium headed by the Kenyan Bidco Corporation is working with the International Fund for
Agriculture Development (IFAD) to establish a massive (but reportedly environment-friendly)
palm-oil processing facility in Uganda (Magumba 2008), while the Infruitec organisation is
teaching fruit-processing courses to homesteaders in South Africa (Isaacs et al 1998). In
Peru, the NGO Intermediate Technology (now Practical Action) has been helping rural families
to obtain cocoa presses and other processing equipment, which they have been using to convert
beans into finished, high-end confectionaries (Rios 1998).
Another indication that Venture Development can work in the Andes is the compelling
example of coca-leaf industrialisation. Some well-organised Bolivian and Peruvian cocaleros
have been successfully marketing a variety of value-added coca-laced products, including
cookies, sodas, toothpastes, and soaps (Langman 2006). Governments and corporations have
already invested several million dollars in these ventures, which have reportedly been quite
profitable. And although the consumer market for licit value-added coca products is probably
too limited to attract the kind and scale of foreign investment that rural Andean communities
need in order to fundamentally transform their economic base, US development specialists
can still benefit from a plethora of lessons learned while taking the model one step further in
the fight against cocaine.
Equitable partnership with the dynamic US private sector could help a project like Chateau
Quillabamba to diffuse risk and create immediate forward and backward business linkages. The
project could be financed much like a high-growth entrepreneurial venture, but with initial seed
investment provided by a consortium of public bodies (i.e. US and Peruvian government
agencies), semi-public bodies (i.e. the Inter-American Development Bank), and corporate enti
ties. USAID could underwrite the consortium, forging partnerships with institutions and corpor
ations that both offer the requisite technical expertise and have a proven track record for social
responsibility. Many such US companies exist,9 including Whole Foods, Trader Joe's, Mars
Candy, Horizon Dairy, Odwalla, and Celestial Seasonings; there are also several in Peru.
An investment in Chateau Quillabamba would appeal to these corporations not merely for the
project's social merits, but also for more 'pragmatic' reasons. In particular, backers could
receive preferential procurement rights that would help them to supply their customers with
unique, fashionable, high-demand products that, in turn, would attract more premium buyers.
Hence, such a partnership could help cutting-edge retailers to further differentiate themselves
from their competition. Any entity investing in such a venture might therefore recoup its
outlay within just a few years from enhanced cash flows, and/or from the re-sale of equity
in Chateau Quillabamba to another innovative, entrepreneurial, and socially responsible inves

tor looking to improve its competitive positioning. Partners could also exit the venture by
selling their holdings back to the co-op itself, possibly at a capital gain. The opportunity to
'buy-out' its original financiers could serve as a powerful motivator for the co-op to succeed.
Theoretically, a venture-investment structure can promote effective community ownership.
A term sheet could distribute different classes of equity to different investors, depending on
their participation and risk exposure, while reserving (at least) a controlling 51 per cent interest
for co-op managers, employees, and contributing farmers, all of whom would be local residents.
Common equity could be distributed uniformly, or based on factors such as landownership,
extent of farmland dedicated to licit crops, demonstrated productive competency, seniority,
and/or some combination thereof. The co-op could also create a board of directors composed
of elected community leaders and representatives of preferred and common equity-holders to
oversee its administration and operations. Finally, the community could establish an open
(but closely regulated) market for trading the co-op's stock; this would enable the enterprise
to generate measurable financial returns for its stakeholders.
These community ownership and investment features are what really put the Venture in this
development model. A project like Chateau Quillabamba could break the mould of ineffective
handout-driven models by helping Andean communities to sever their unhealthy economic
dependence on both coca leaf and donor aid. Furthermore, because a company's principal
motive for participating in such an endeavour would be to diversify its premium and exotic
product offerings - not to acquire cheap labour - Venture Development can also help to demol
ish the negative 'sweat-shop' archetype of foreign corporations exploiting rural communities.
Corporate investments would be used to construct state-of-the-art processing centres which
rural communities subsequently owned and operated - not to establish industrial-scale agricul
ture. Quillabamba's smallholder farms would thus remain family-owned and family-run.
Indeed, a key facet of Venture Development is that it can help independent homesteads to lever
age their smallness as a comparative advantage. Dispersed Andean farms cannot hope to
compete with the enormous economies of scale achieved by big US or Chilean agriculture.
But they can, with the proper organisation, partnerships, and distribution linkages, create a
niche in certain premium markets that big agriculture is less capable of tapping. Thus,
Venture Development could potentially help Andean communities to capture greater economic
gains, while also preserving their cultures, traditions, and self-determination.
Making friends and influencing farmers

Addiction will obviously ensure that the demand - and hence supply - for cocaine persists for
the foreseeable future. Venture Development cannot in itself eliminate the problem of illegal
drugs. In fact, the cocaine scourge may never be completely cured without a holistic 're
evaluation' of societal norms. Legalisation (and associated regulation) probably offers the best
hope of putting the Andean cocaine trade out of business for ever, but the US public at least is
simply not ready for such a 'drastic' measure. Hence, the idea is not currently politically feasible.
Of course, as long as cocaine remains illegal, anti-drug laws must be enforced. Venture
Development can improve the effectiveness of supply-side law enforcement by recruiting
Andean smallholder farmers as economic allies. Systematically integrating coca-growing com
munities into the licit global economy can remove their impetus for participating in the illicit
one, thereby robbing the cocaine engine of its established production base. This is the essence
of how a re-invigorated development strategy can bring balance to the currently over-militarised
ACI, thus rendering US counter-narcotics interventions far more effective - and far less prone to
seditious and inhumane collateral consequences.
Unlike previous US policies, Venture Development therefore offers 'built-in' solutions to

many of its own likely blow-back challenges. One potential negative consequence is increased
deforestation. By reducing the available supply of coca leaf, Venture Development might
encourage illicit expansion into virgin areas such as national parks. But reductions in estab
lished coca plantations would free up enforcement resources, thus enabling military interven
tions to effectively thwart expansion into pristine environments. This arrangement would be
both palatable and sustainable from a public diplomacy standpoint. After all, the motive
driving those who shun participation in supremely lucrative (and totally voluntary) Venture
Development co-ops in favour of hacking new plantations out of untouched wilderness
would be obvious: to engage in the illegal drug trade. As such, Venture Development could
de-escalate the drug war by enabling police and military campaigns to target the few hardened
criminals who process and traffic cocaine, while befriending the majority of farmers who have
been opportunistically growing its key input.
The majority of Andeans would be likely to welcome a counter-narcotics policy that treats
them as partners rather than felons. A constructive, investment-based arrangement would
also resonate positively with many Andean political leaders, who for two decades have
assumed the awkward role of collaborating with US drug policies that remain largely unpopular
among their own electorates. Venture Development could therefore relieve coca farmers of the
stigma associated with cocaine trafficking, while liberating Andean leaders of the need to walk
the delicate political tight-rope of being viewed by Andean voters as 'puppets of Washington',
and being labelled by Washington as 'soft on drugs'. Indeed, the overwhelming majority of
North and South Americans share a common interest in creating a more prosperous and
secure hemisphere. Only by enlisting local communities as genuine allies can the USA
finally immobilise the head-gasket of the mighty Andean cocaine engine.
Acknowledgement
The authors are indebted to the former Mayor of Cusco, Dr Carlos Valencia Miranda, for inspiring the
conception of this article.
Notes
1. Please contact the authors for detailed calculations supporting all non-cited figures in this article.
2. USAID claimed that 27,700 out of 32,000 AD clients remained 'coca-free' through 2004 (USAID
2005b), suggesting a breach-of-contract rate of less than 14 per cent. But the actual percentage of par
ticipating families either replanting some coca or not entirely abandoning it in the first place was prob
ably far higher. Most coca-farming communities are composed of scores of small, independent, and
widely dispersed plantations whose ties to the central community leadership are tenuous. With few
roads to interconnect communities, and with landowners often holding illegitimate and/or conflicting
titles, community leaders can quite easily falsify the size of their 'governing jurisdiction' when nego
tiating an AD contract - which they might logically do in order to attract greater benefits. In effect,
remote farming communities can rather easily rotate and/or conceal their plantations in such a way
that they receive benefits without ever really abandoning coca.
3. When confronted with acute supply shortfalls, street dealers typically react by reducing purity, not by
raising retail prices.
4. Some AD programmes in Afghanistan and the Andes have been helping rural farmers to grow high
priced specialty crops such as alfalfa, asparagus, saffron, and mint (Ward et al. 2008). Although
these crops can offer family-based farms a greater earning power than coca (fresh asparagus, for
example, can be twice as lucrative), viable markets and distribution channels are usually smaller and
harder to access than are those of more mainstream produce. Furthermore, smallholder farmers are
increasingly facing stiff competition from domestic agro-industry. Peru, for example, has already
become the world's leading exporter of asparagus - thanks to large-scale farms recently established
on its arid Pacific coast. Smallholders hoping to export asparagus from the Andean sierra face major
disadvantages, including non-ideal growing conditions, inability to attain economies of scale, and
greater distance to shipping ports. Such specialty crops may offer family-based farms some relief
from the effects of coca removal, but they will seldom become the cornerstone of a vibrant rural agri
cultural economy, unless the host community - by virtue of its growing location - enjoys a unique
comparative advantage in their cultivation.
5. Bolivia and Peru maintain highly regulated legal markets for coca leaf, which probably discourages
farm-based cocaine processing.
6. US cocaine consumption has been declining since the 1980s, mainly due to competition with heroin,
ecstasy, and meth. Although cocaine abuse is rising in Europe and Latin America (and possibly in
Africa and Australia, as well), these 'up-and-coming' markets are not yet substantial enough to over
come reductions in US demand, thus explaining why global consumption has fallen.
7. Interview with Dr Carlos Valencia Miranda, Mayor of Cusco, Peru, at the Cusco City Hall (August
2006).
8. Information provided by Dr Sergei Popov, Senior Environmental Specialist, Asian Development Bank
(February 2008).
9. 'Past winners of the Socially Responsible Business Awards,' available at http://www.
sociallyresponsibleawards.org/pastwinners.html (retrieved 26 August 2009).
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Jason Spellberg (corresponding author) and Morgan Kaplan are graduate students at The George
Washington University Elliott School of International Affairs. <jasons@gwu.edu>

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A rural economic development plan

Jason Spellberg and Morgan Kaplan

Um piano de desenvolvimento econdmico rural para ajudar os EU A a veneer sua guerra

Un plan econdmico de desarrollo rural destinado a apoyar la guerra contra la cocaina en

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Where is the carrot?

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Table 1: Comparing commodity agriculture*

Table 2: The illicit value-added chain for coca-leaf processing

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Not carrots, but carrot cake

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Table 3: Comparing coca leaf with licit value-add products

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Putting the Venture' in development

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in Chateau Quillabamba to another innovative, entrepreneurial, and socially responsible inves

Making friends and influencing farmers

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Unlike previous US policies, Venture Development therefore offers 'built-in' solutions to

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