Policy Analysis No. 156

The Drug War vs. Land Reform in Peru

By Melanie S. Tammen
July 10, 1991

Executive Summary

More than 60 percent of the world’s coca production is concentrated in Peru. More than 200,000 Peruvian peasant families—approximately 1 million people—cultivate coca on nearly 300,000 hectares of land and depend on it for their livelihood.[1] Estimates of the value of Peru’s coca and cocaine exports range as high as $2 billion for 1989—57 percent of Peru’s 1989 legal exports of $3.5 billion. The value of the coca to the cultivators is approximately $500 million—about two-thirds the value of Peru’s legal agricultural products.[2]

The Peruvian government received more than $70 million in U.S. aid from 1980 through 1990 to support coca eradication and interdiction efforts, yet the area under coca cultivation grew by at least 15 percent during that time and continues to expand.[3] Despite that losing record, the Bush administration has pressed the new government of President Alberto Fujimori to accept even more U.S. military advisers and weaponry to back an escalated war against Peru’s coca trade. Fujimori, for his part, in September 1990 refused to sign a related $36 million U.S. military aid agreement and announced that Peru’s campaign to move farmers out of coca cultivation would increasingly rely on a new strategy—giving coca growers legal title to their lands if they commit to cultivate alternative crops. On May 14, 1991, the aid standoff ended when U.S. and Peruvian officials signed a bilateral agreement on “Drug Control and Alternative Development Policy” that incorporates Fujimori’s anti-drug strategy.

The three-part Fujimori initiative includes (1) the deregulation of markets for the “substitute” crops, (2) a rural land registry and titling campaign, and (3) a redoubled effort to interdict coca traffickers’ planes. The deregulation component is intended to address the fact that coca is traded (albeit illicitly) in a free market while substitute crops, such as coffee, are traded in overregulated, closed markets. The titling campaign will make the titling of a coca grower’s land conditional on his committing to crop substitution and accepting supervision to ensure that he does so.[4] The interdiction effort is designed to disrupt the traffickers’ demand for coca leaf, thus holding the price low enough to make crop substitution economically attractive. The last two components are largely motivated by the risk of substantial trade and aid sanctions if Peru ceases cooperation with U.S. anti-drug efforts.

Fujimori is on the right track. The potential for the cultivation of crops other than coca has been stifled for more than 20 years, since Peruvian agriculture was nationalized through a collectivist land “reform” in 1969. Now, two decades later, the noncoca agricultural economy is in crisis. The state-run agrarian bank, on which nearly all the nation’s farmers depend for credit, is effectively bankrupt. The government is pleading for Peru’s commercial banks to resume agricultural lending, which they largely ceased after the 1969 land reform. But few farmers have registered title to their land with which to apply for mortgage credit.

Although the titling campaign bodes well for Peruvian agriculture, the rejuvenated interdiction campaign will fail just as did every eradication and interdiction program in Peru throughout the 1980s. It will drive the highly mobile coca farmers and traffickers to new areas of operation (the so-called corset effect) and press the coca growers into closer cooperation with the violent communist insurgency movements of the Shining Path and the Tupac Amaru (MRTA).

The prospects for a widespread and lasting switch by coca growers to substitute crops are dim unless the United States legalizes illicit drugs, which would bring down the price of drugs substantially and permanently. Estimates of the premium that peasants receive for coca versus alternative crops vary, but it is undoubtedly substantial. One 1990 study by a Peruvian research organization and a UN agency estimates that coca growers in the Upper Huallaga Valley make a $4,000 profit per hectare, double that realizable from the cultivation of legal crops.[5]

Official claims to the contrary, Washington is not winning the “drug war” at home or abroad. A 1990 House Government Operations Committee study found that, despite a steady increase in narcotics control assistance to Bolivia, Colombia, and Peru throughout the 1980s, the trade remains basically unaffected and is, in some instances, expanding. The Drug Enforcement Agency (DEA) is unable to confirm any decrease in the amount of cocaine coming into the United States as a result of the 1980s’ interdiction efforts.[6] On the home front, federal and state prisons are teeming with drug-law violators—primarily nonviolent offenders.

Washington should applaud Fujimori’s effort to empower Peru’s farmers through secure land ownership. Going still further, Washington could dramatically alleviate the law-and-order problem faced by both nations by legalizing the consumption of narcotics in the United States. By removing the profit, and thus the crime, from the narcotics trade, we would restore order to America’s streets and school yards and allow Lima—by decoupling insurgents from coca growers—to effectively combat the runaway insurgency in Peru. That would allow Fujimori to title all rural farmers, without regard for what they grow, and would preclude the creation of an expensive, permanent supervisory bureaucracy to police title farmers’ fields.

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Melanie Tammen is director of the Cato Institute’s Project on Global Economic Liberty