The confessions of a captured Zetas boss give a valuable insight into the inner workings of the drug gang, and how much Mexico's internal drug market is worth to them -- analyst Alejandro Hope explores the implications.
Two days ago, I commented on the testimony given by Raul Lucio Hernandez, alias “El Lucky,” who was the regional Zetas boss in the center of the country until his detention in December. The document tells us a lot about the modus operandi and the vulnerabilities of the Zetas, but also about the size and nature of the criminal economy and, above all, the drug market within Mexico. Here a few of the conclusions I arrived at, some of them almost speculative, based on Lucky's numbers.
- El Lucky said that he used to sell 100 kg of cocaine a month in the state of Veracruz. That is the equivalent of 1.2 tons a year (predictably, the Zetas were monopolists, or almost, in that state). However, in all likelihood, this wasn’t pure cocaine. The Zetas boss does not say anything about the purity of his drugs, and there are no good external accounts. However, a recent study put the average purity of cocaine sold in bulk at the US-Mexican border at between 70 and 80 percent. It is likely therefore that the cocaine sold by the Zetas had a purity of around 80 percent (to be cut later, before being sold on the street). So, 1.2 tons of cocaine at 80 percent purity is equivalent to 960 kg of pure cocaine. According to the National Addiction Survey 2008 (ENA 2008), cocaine consumers in Veracruz (the previous year) represented 6.7 percent of the national total. As a consequence, if El Lucky is telling the truth about the volume, it is likely that the national consumption of cocaine is 14.3 tons (two days ago I said 17 tons, but I hadn’t made the adjustment for purity). That figure is equivalent to between 7 and 10 percent of the total consumption in the US.
- With the estimate of volume, it is possible to calculate the number of users. Assuming an average consumption of 34 grams a user per year (a measure used in rigorous estimates of demand), you get a total of 421,926 cocaine consumers in Mexico (of that total, something under 30,000 would be in Veracruz). The figure is slightly above the range estimated in ENA 2008 (from 267,445 to 393,656, with a best estimate of 350,550), so it’s worth congratulating the authors -- they almost hit the nail on the head. Now, not all consumers are equal: following the methodology of the RAND Corporation, it is possible that heavy consumers represent 17 percent of the total. That is equivalent to 71,727 users, who would be responsible for some 75 percent of total consumption, that is to say, 10.8 tons.
- El Lucky also sheds light on the value of the national cocaine market. According to his statements, the Zetas sell an average of 100 kg of cocaine a month in Veracruz, and each one earns them 350,000 pesos [$25,000]. That is equivalent to 350 pesos a gram [$25], but we don’t know if it refers to wholesale or retail prices. However, from his description of the tax the Zetas levied on truck robbers, it is likely that that number already covers a good part of the retail price: according to the statement of one robber, the Zetas took 80 percent of the loot. It is not improbable that the same applies to the local drug dealers. This being the case, the retail price would be 437 pesos per gram, approximately $32 (note: this is probably not the nominal price, as there are various cuts in quality during the process. But at the end of day, it is what the street drug dealers would probably get for a gram.) Of course, there are important regional variations in price, but given the location of Veracruz, it’s possible that this number is close to the average. Going back to the adjustment for purity at the estimated national volume, you get a total value of 7.811 billion pesos ($566 million). That would be roughly equivalent to 1.6 percent of the value of the retail cocaine market in the United States.
- If this is the worth of the national cocaine market, what do the total sales of illegal drugs come to in Mexico? El Lucky doesn’t tell us much about this issue, but we can use other sources. According to a study by consulting firm ABT Associates (using data from the year 2000), cocaine represents 55 percent of the total value of the US retail drug market. In a more recent study, and using different methodology, researchers from the RAND Corporation put cocaine’s share of the total drug market at 49 percent. Given the relatively very low prevalence of consumption of heroin and methamphetamine in Mexico and the low price (on average) of marijuana, it is not unlikely that cocaine makes up a slightly higher share of the market on this side of the border. I would think it’s about 60 percent. This being the case, the value of Mexico’s drug market would be 13.018 billion pesos (approximately $943 million). In value, the Mexican market would then be 65 times smaller than the US market (more or less).
- To put things in perspective, the cartels’ gross income from drug exports is estimated to be $6.6 billion, six times higher than the value of the national market. However, it is possible that in terms of the earnings of organized crime, national sales are worth more. In terms of collecting tax [piso], they could be getting 60 to 70 percent of the final consumer price (less in Mexico City, more in Veracruz or Nuevo Leon). In contrast, in exports, earnings probably tend to be more like 50 percent of gross income (that’s the percentage the United Nations Office on Drugs and Crime (UNODC) calculates for cocaine). This being the case, the difference between exports and the national market would be more like four to one.
- And how much do other businesses bring in? Here, who knows: El Lucky does not give us much detail to make a semi-reasonable estimate. But it would not surprise me if they are at least equivalent to the income generated by the national drug market. On another occasion, I made an estimate and it was around those ranges (about a billion dollars), but I didn’t feel very comfortable with the calculation. You can see it here if you're interested (p.274, box 6.2).
In sum, El Lucky reveals a lot by giving a little bit of information. He confirms, among other things, that drugs in Mexico are still a fairly small and minority issue: most cocaine consumption is probably concentrated in less than 0.1 percent of the population aged between 12 and 64. But he also tells us that the size of the national market is not trivial, which can explain a good part of the violence that we have seen in these last few years. Perhaps I have bored you with so many calculations, but for me it is a crucial issue: to put numbers on things allows us to regain a sense of proportion that is sometimes lacking in discussions of organized crime. And with this sense of proportion comes hope: the enemy is very big and very dangerous, but it is not the size of a titan, and it does not have intergalactic levels of sophistication. To know that is, despite everything, good news.