"...to make a kilo of cocaine, for example, you need about a ton of fresh coca leaf. And that ton of coca leaf in Colombia is worth about $500. Now, by the time that's turned into cocaine in Colombia it's worth perhaps more like $1000. By the time it makes it to the United States it might be work $15-20,000. By the time eventually it's sold in tiny portions to a consumer, that kilo is worth the equivalent of about $100,000.
So there's a very, very big increase as you go along the supply chain. So, imagine if those eradication methods are very effective in raising the price of coca leaf--and as I said, I think there are reasons to be skeptical about whether they are. But imagine they are so successful that they are able to raise the price of the raw material, the coca leaf, by 100%--they are able to double it from $500 per ton to $1000 per ton. That is transferred--eventually--let's imagine, to the consumer. But by that stage, it's such a tiny proportion of the final price that it makes very little difference. Imagine that $500 being transferred to the final cost of the kilo in the United States. It means that kilo is worth $100,500.
So, in other words, a very, very effective program which is double the price of the raw material, has increased the price of the final product by less than 1%. Or to spell it out using a legitimate industry, which I think helps to clarify the point: Imagine if you were trying to raise the price of artwork, and you said, 'Okay, well, we want to try and raise the price of paintings, and the raw material of paintings is paint. And so what we're going to do is we're going to try to raise the price, drive up the cost of the box of paints from $50 to $100. We're going to double it. And on that basis, we reckon that the price of this $1-million-dollar painting is going to double from $1 million dollars to $2 million dollars. Obviously that's not going to happen, right? At the very most what you'd expect is that the artist might add that extra $50 onto the price of his painting. You are not going to double the price of the price of the final product, necessarily, by doubling the price of the raw material, if the raw material is a sufficiently small part of the eventual price of the finished product.
So I think that's what we are doing in drugs: We're often making the mistake that if we drive up the price of the raw ingredients--whether that's coca leaf or opium poppy or whatever--we're going to have a big impact on the price of the finished product. Very often it seems that's not the case at all."
http://www.econtalk.org/archives/2017/02/tom_wainwright.html
So there's a very, very big increase as you go along the supply chain. So, imagine if those eradication methods are very effective in raising the price of coca leaf--and as I said, I think there are reasons to be skeptical about whether they are. But imagine they are so successful that they are able to raise the price of the raw material, the coca leaf, by 100%--they are able to double it from $500 per ton to $1000 per ton. That is transferred--eventually--let's imagine, to the consumer. But by that stage, it's such a tiny proportion of the final price that it makes very little difference. Imagine that $500 being transferred to the final cost of the kilo in the United States. It means that kilo is worth $100,500.
So, in other words, a very, very effective program which is double the price of the raw material, has increased the price of the final product by less than 1%. Or to spell it out using a legitimate industry, which I think helps to clarify the point: Imagine if you were trying to raise the price of artwork, and you said, 'Okay, well, we want to try and raise the price of paintings, and the raw material of paintings is paint. And so what we're going to do is we're going to try to raise the price, drive up the cost of the box of paints from $50 to $100. We're going to double it. And on that basis, we reckon that the price of this $1-million-dollar painting is going to double from $1 million dollars to $2 million dollars. Obviously that's not going to happen, right? At the very most what you'd expect is that the artist might add that extra $50 onto the price of his painting. You are not going to double the price of the price of the final product, necessarily, by doubling the price of the raw material, if the raw material is a sufficiently small part of the eventual price of the finished product.
So I think that's what we are doing in drugs: We're often making the mistake that if we drive up the price of the raw ingredients--whether that's coca leaf or opium poppy or whatever--we're going to have a big impact on the price of the finished product. Very often it seems that's not the case at all."
http://www.econtalk.org/archives/2017/02/tom_wainwright.html