Seminars

June, Thursday 20th 2024

Berk Oktem will present “Illicit crops and forests: Exploring the relation between opium poppy demand shock and deforestation in Mexico”.

Abstract:

By and large, agricultural expansion is the main cause of deforestation, and crop prices are found to be an important driver. Yet, we know very little about how crop prices influence illicit crop cultivation and deforestation. By examining the heroin demand shock from the United States, I investigate the association between the rising demand for opium poppy, higher prices, and their impact on land use decisions and deforestation in Mexico. I employ an empirical strategy borrowed from Daniele et al. (2023), based on exploiting geographic variation in poppy suitability and the timing of the OxyContin reformulation in 2010. The latter led to a substitution between OxyContin, a widely used recreational painkiller, and street heroin in the United States, increasing opium poppy demand and prices in Mexico—the main supplier of heroin to the United States. My primary findings suggest that a positive demand shock for an illegal crop can reduce agricultural activity for legal crops and deforestation. These results differ from the literature that examines the relationship between crop prices and deforestation. However, I argue that this relationship holds true due to the very specific characteristics of the opium poppy plant.