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Impact of the Coca in Peruvian Economy Peru 1980 - 1992

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Impact of the Coca in Peruvian Economy Peru 1980 - 1992 cowrmcr N"527-0000-C-00-2296-00 IMPACT OF THE COCA IN PERUVIAN ECONOMY PERU 1980 - 1992 Siydy preparedby CiantoSA. for USAD /PERU ANALYSIS OF THE RESULTS FINAL REPORT LIMA, SEPTEMBER 1993 CONTENTS ANALYSIS OF THE RESULTS I Introduction .................................................... 01 II The Coca Economy Today .......................................... 03 III Production Processes of the Coca Economy ............................ 10 IV Coca and Standards of Living in Peru's Upper Huallaga .................. 13 V Conclusions and Summary ......................................... 19 METHODOLOGICAL APPENDIX Presentation ............................................... 01' Methodology to estimate the cultivated coca hectares botweon 1980 y 1992 .... 01 Coca leaf price and its derivatives ................................ 03 Input and labour required to produce coca leaf and its derivatives .......... 03 Coca leaf production and its derivatives between 1980 and 1992 ............ 04 Input-Output matrix in coca economy .............................. 04 Chart Index ............................................... 05 Input-Output matrix for coca activities and its derivatives, Peru 1992 ........ 62 Bibliography ............................................... 70 I. INTRODUCtION The consulting firm Cuanto S.A. is pleased to present the result, of the project entitled "The Impact of Coca in Peruvian Economy". The main objective of tlie project was to construct and analyze an updated and detailed data base on coca production and trade, so as to be able to measure its importance on the Peruvian economy. There is a wide assent on the negative effects that drug traffic has on a country's social and political stability despite this, there was not reliable data on coca's harvested surface, growth rate, number of peasant families living from coca and their average income level. The construction of a consistent data base was based on a careful and discerning analysis of the information available, most of which was provided by the Office of Economic Recovery of the United States Agency for International Development. A number ofrecent studies on Peru's coca zones, prepared by different people and institutions, were. of special importance. These included: a preliminary census by the National Statistics Institute (Instituto Nacional de Estadfstica e Infornmitica, INEI, 1991); field work by Rita Osnayo (1991, 1992); recentresearch studies by the Special Upper Huallaga Project (Proyecto Especial Alto Huallaga, PEAH, 1992, 1993); a nationwide survey by CEI)RO on drug consumptint) (1992); a study by Novoa Ingenieros (1992); and the last two of a series of surveys by Cuanto in the Upper Huallaga,, one covering different urban areas located in the Huallaga Valley (November 1991), and the other taken in urban and rural areas of the Nueva Cajamarca, Shamboyacu and Tocache districts in the department of San Martin (May 1993). The following works were especially helpful in the study's methodological analysis, and in the description of the main agents involved in the production, refining and trading of coca leaves and its derivatives: Astete and Tejada, Elementospara ina economia po/iticade ]a coca en el Alto Huallaga(Elements for a Political Economy of Coca in the Upper Huallaga), 1988, Nufiez and Redtegui (thesis) La econonia cocalera en el Alto Ihul/agl:inpacto econdmico (The Economic Impact of Coca in the Upper Huallaga), 1990, and the working paper by Elena Alvarez, Illegal Export-led Growth in the Andes, 1992. The present report includes the use, for the first time in Peru, of a methodology enabling estimations by departments of land area covered by coca crops bnsed on the amount of labor force that is available for illegal coca farming. This information was obtained, in turn, from the preliminary 1991 census, providing the most recent population data that exists. Other major contributions of this report include a detailed survey on standards oflivingin urban and rural areas taken in three districts in the department of San Martin: Nueva Cajamarca, Shamboyacu and Tocache, reliable estimations of technical production coefficients for coca leaves and its derivatives, based on information from previous research studies, and, the development of an input-output matrix for the coca economy. The three districts selected for the in-depth study on the effects of the coca industry on standards of living in San Martin correspond to substantially different realities. Nueva Cajamarca is mainly a rice producing region, where the encroachment of coca fields is just beginning. None of those surveyed in the Nueva Cnjanirca (lanimed to grow coca. The main activity in Shamboyacu is coca production. Here two out of every three agricultural workers acknowledged that they produced coca. Tocache is a well-established coca zone where, however, coca production has lately begun to decline. One-third of the farmers located in Tocache admitted growing coca. Due to the present study, we know now that monthly incomes of coca peasant families range from us $ 200 (non-tenantday-labourers) to us $700 (land owners coca paste processors); coca farmers income is 85% higher than non-coca farmers (this comparing incomes from peasant families from Shamboyacu and Nueva Cajamarca). Another important fact related to coca crops spread out, deforestation and environment destruction is migration. From the three districts studied in May 1993, 42% of the population over five, lived outside the Upper Amazon in 1988. An strategy searching sustained development of the peruvian Amazon and maintenance of the tropical forest, should study in depth migrant expulsion factors from their zones of origin. It's a hope that the present work will help to understand better coca's impact in the peruvian economy. 2 I. The Coca Economy Today Cuanto SA. estimates that in 1992, 257,000 hectares of land were dedicated to the cultivatioi of coca. Of this, less than 18,000 corresponded to legal farming, while little more than 239,001 was used in illegal farming. The average growth rate of coca crops between 1980 and 1992, wa, 6.4% per year (graph 1). Coca's cultivated hectares have been estimated in function of the agricultural active populatioz available in the peruvian Upper Amazon for illegal activities (see methodological appendix) This methodology assumes that if legal crops are not viable due to the lack of credit or lom prices, the decrease of legal crops surface allows free labour for coca crops. Here, we have tc clarify that in this substitution process from legal crops to coca, the total amount of peasant, can not be considered nor the celerity of the process that our figures suggest. Coca leaf production is concentrated in the departments of San Martin and Hudnuco, whic. together comprise 57% of total cultivated area in Peru. Over the last five years, however, coca fields have expanded forcefully into new areas located in the departments of Amazonas, Ucayali, Junfn, Ayacucho, and Puno (graph 2). From a long term perspective, the increasing use of pesticides and fertilizer have led to a continual increase in the average yield of coca crops up until 1990, when new diseases cut average returns to approximately 14%. The latest reports show that average yield in the Huallaga coca zones appear to be stabilizing at about 1.8 metric tons of dry leaves per hectare per year. Over the last ten years, productivity has increased at an average rate of 3.5% per year, albeit at an erratic pace. One of the most important impacts of the processing of coca leaves is the harm it causes to the fragile jungle ecology. Cuanto estimates that in 1992, producers of coca and derivatives dumped into the rivers of the upper jungle regions 22.9 million gallons of kerosene, 4.4 million liters ofsulfuric acid, 1.1 million liters of ammonia, 1.1 million liters of herbicides, 1.7 million liters of insecticides and 728,000 kilos of Potassium Permanganate. Comparing health conditions in the three districts, we observe that the percentage of inhabitants with disease symptoms is higher in Shamboyacu (coca district), where 37%of those surveyed reported havingsuffered some kind of illness over the course of the previous 15 days. In the rice-producing district of Nueva Cajamarca, only 24% declared having been ill in like period. The percentage of inhabitants unable to work was 12% in Shamboyacu, compared with only 6%in Nueva Cajamarca These results illustrate the effects of river poisoning, caused by the production of cocai and deiriv iv.s, on the health of the coca farmers and their families. If we take as a reference Shamboyacu's survey results and figures from a cattle and land census taken in the same district (September 1993), we can assure that a cattle and land unit in coca zones has an average of 24 hectares, fiom which, almost 4 hectares are cultivated, the rest consist of wood and forest; 50% of the planted surface is used for occational crops (corn, bananas, beans, cassava and rice) the other 50% for permanent crops; 90% of this land is used for coca crops (1.7 hectares per unit) in this "typical" unit we have 2 persons over 15 working full-time, dedicating 70% of their time to coca crops. Each peasant family is composed of 5 members on average. Cuanto S.A. estimates that currently nearly 155,000 families, or approximately 750,000 people, depend directly on coca crops. These families can be divided into three groups. The first consists of non-tenured workers which cultivate less than 1.5 hectares, on average. The second group is made up of tenured farmers owning an average of four hectares of cultivated land area, while the third is made Lip of land owners with an averaro of fo'ur hectares of cultivated area, and which also process coca leaves to produce coca paste. Peasant families working small plots of land represent nearly a fourth of the total, and have a monthly family income that ranges between US$200 and US$300. The second group includes anl additional 25% of coca families with a monthly income ranging from US$400 to US,500.
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