15 November 2012


Walter White on wheels? The National Drug Law Enforcement Research Fund (NDLERF) has released Evaluating drug law enforcement interventions directed towards methamphetamine in Australia, a 133 page report by Alison Ritter, David Bright and Wendy Gong on a study over 2008 and 2009.

The aims of the research were to inform drug law enforcement interventions by providing a rich description of the Australian methamphetamine supply chains and to conduct an initial economic evaluation comparing law enforcement interventions directed at the methamphetamine market.

The authors comment that
Governments and policymakers are interested in determining which interventions are more or less effective than others, such that the scarce funding resources can be allocated in the most efficient manner possible. There is scant research available to law enforcement to guide such decisions. The main impediments to such research are the fundamental methodological challenges inherent in such an undertaking. This project is an attempt to conduct a preliminary analysis comparing the costs and impacts of different types of law enforcement.
It is a ground-breaking study as this has not been previously attempted and it should be seen as the initial development of a methodological approach that can be improved upon with subsequent research. The project aimed to determine the relative cost-to-impact ratios of different law enforcement strategies aimed at reducing methamphetamine production and distribution. In an environment focused on efficiency in resource allocation, it is hoped that this research will provide the impetus for further research on the effectiveness of drug law enforcement. As the results of such research accumulate, it is hoped that policymakers will be able to use the information to improve decision making on law enforcement investment.
The NDLERF states that the report -
provides both a rich description of the Australian methamphetamine supply chains and also conducts an economic evaluation of four law enforcement interventions directed at different levels of the illegal methamphetamine market.
There are two supply chains for methamphetamine in Australia: the first commences offshore and includes the importation of end-product and precursors; the second supply chain commences domestically (with sourcing of precursors) and involves domestic manufacture and distribution. The supply chains converge at the wholesale level within Australia. The report examines found evidence of diverse organised crime groups involved in methamphetamine manufacture and trafficking. These organised crime groups will cooperate with each other for financial gain. The methamphetamine market is characterised by corporate organisational structures with vertical integration, such as Outlaw Motorcycle Gangs; freelance structures via sole operators, such as “meth cooks”; and communal organisations tied with common backgrounds/values (ethnically-based organised crime groups).
The study also assesses the difference between four drug law enforcement interventions in terms of the impact (value of seized product) against expenditure (government costs). The economic model results indicated that the highest ranked intervention, in terms of average costs to impact, was clandestine laboratory detections. Ranked second was end-product trafficking seizures (domestic); third was precursor seizures and the lowest ranked intervention relative to all four was end-product border seizures, but these last two were not substantially different.
In discussing prices the authors comment that -
Three prices exist in the methamphetamine market—prices for precursors, prices for the crystal methamphetamine form and prices for the non-crystal methamphetamine form. Our research on precursor prices reveals that prices of precursors purchased offshore are very inexpensive, whereas within Australia, high prices are paid. This may reflect successful law enforcement efforts at reducing importation of precursor chemicals.
An important feature for any illicit market is the extent of profitability. Profitability is measured by the degree of mark-up in price between two levels of the market. However, we do not have a direct measure of markups per se. An indirect calculation is the quantity discount coefficient, which is derived from the price–weight relationship at different weights. The quantity discount can be calculated on two aspects of price - the changes in the unit price (which reflects the extent of a change in price per standard unit purchased), or the changes in the total price (which reflects margins on total amount sold). We estimated the quantity discount coefficient for both unit price and for total price across the two methamphetamine forms (crystal and non-crystal). This is the first attempt to conduct such analyses for methamphetamine in Australia.
The results of the regression showed that the quantity discount coefficient β1 (quantity discount estimate) for total transaction price for crystal methamphetamine was 0.8727 and for the non-crystal form of methamphetamine, it was 0.8453 (if the coefficient is equal to 1.00 then there is no difference between price paid and price sold). The goodness of fit is reasonably high (R2 above 0.90 in both cases). Comparing the quantity discount coefficient with other drugs in other countries, the Australian coefficient is large, indicative of lower unit price change. This means that running a methamphetamine drug business in Australia may pose lower risks than in the United States, although this is completely suppositional.
Another implication from these results is that methamphetamine seems to be subject to the following pricing rule - for every 10% increase in transaction size, the unit price will fall by 1.21% for crystal form and by 1.47% for non-crystal form. Interestingly, these are smaller than for cannabis (2.5%). To calculate the mark-ups from the quantity discount coefficient, one needs to know the ‘branching ratio’ (ie how many times the drugs are cut during distribution by one dealer). However, the branching ratio is not known, so we use hypothetical numbers. Thus, for example, with a cut between four to 20 times for the crystal form, the mark-ups can range from 119% (at 4 times) to 146% (at 20 times). If the branching ratio is larger, the mark-ups will be higher.
The regression results can also be used to compare the price of crystal and non-crystal. Those prices vary according to their weight, as expected. Our research shows that price differences between crystal and non-crystal forms of methamphetamine are not large at lower seizure weights, while at higher weights (eg at a weight of a pound (455g)) the crystal form of methamphetamine has a higher price than the non-crystal form (about 1.5 times higher). At higher market levels, this price differential is even greater, with crystal methamphetamine being worth almost double that of non-crystal methamphetamine.
Finally, we were unable to determine whether criminal networks adjust price, purity and/or both in order to maximise profits. Our purity analyses revealed that purity varied greatly across weight. In addition, our analysis did not support the assumption of higher weight associated with higher purity. Furthermore, the data analysed here reinforces that caution needs to be taken when using average purity (which may be highly misleading).
Finally, future research should incorporate purity with price, if data which matches purity with price can be obtained.
They go on to comment that -
According to reports from key informants (KIs), the increasing restrictions on the availability of pseudoephedrine in Australia (eg Project STOP, rescheduling of pseudoephedrine-based products) have resulted in a trend of increasing bulk importations of raw pseudoephedrine. With this shift, the interception of precursors at the border will be a priority for law enforcement agencies. Key informants also reported an increase in the use of pre-precursors within domestic manufacture. There are multiple sources for precursors and reagents (eg legitimate industry, break and enter, shell companies etc). Techniques and strategies used by criminal groups to obtain the required chemicals are likely to continue to evolve. For example, the use of pre-precursors in manufacture is now growing as the availability of precursors is restricted. 
The methamphetamine market is dynamic and constantly changing. For example, when a few ‘cooks’ are imprisoned, their preferred methods are no longer common; but the processes can resurface when cooks with specialised knowledge and skill are released from prison. Pseudo-runners appear to be a declining trend (given Project STOP and other restriction on the availability of pseudoephedrine). There has also been a trend back to P2P-type methods in response to restrictions on the availability of pseudoephedrine. Drug law enforcement will be required to focus on the precursors and manufacture techniques utilised for P2P manufacture. There is some regional variation in manufacture methods across Australia. This may be to do with ‘cooks’ availability and their preferred method, but the variation also relates to access to chemicals (eg the Nazi method predominates in Western Australia possibly due to ready availability of ammonia). New methods continue to be invented and used within Australia. Law enforcement will continue to rely on intelligence gathering about manufacture methods to keep abreast of new manufacture processes as they emerge. 
The shift to importation of raw pseudoephedrine in bulk and the increased use of P2P methods may lead to an increase in the number of large clandestine laboratories in Australia. The dismantling of clandestine laboratories will increasingly rely on successful investigations into organised criminal groups who operate large clandestine laboratories. 
The separation of manufacture into discrete steps at different sites may create the impression of small timers but in fact, there is evidence that they can be coordinated by large syndicates which split up the manufacture process as a risk management strategy.