High Drug Prices Do Not Reduce Demand

The United Nations Office of Drugs and Crime has brought forward a special session on international policy, which will focus on a number of issues including the current worldwide debate about the decriminalisation of drugs.

Those who support prohibition typically argue that it reduces demand by sending a clear message that drug use is unacceptable and dangerous, while those against say it does more harm than good by creating an illegal black market for drugs (and all the associated problems), unnecessarily criminalises otherwise law-abiding individuals, exposes users to potentially-deadly fillers and fluctuating purity levels, and wastes tens or even hundreds of millions of taxpayer dollars.

This blog focuses on the question of whether high prices caused by drug prohibition reduces demand.

Cost of Australian Drugs

The 2015 Global Drug Survey found that Australian users can expect to pay dramatically higher prices for drugs than those in the US and Europe. It found that Australians pay an average €18 for an ecstasy pill and €166 for a gram of MDMA. This is second only to New Zealand, and slightly more than double of price in the third most expensive country, Switzerland.

Australian cocaine users are paying up to four times as much as users in Britain- cocaine is about $300 a gram in Australia, and $75 a gram in England.

”It’s a luxury item here [in Australia]. People who’ve got lots of money use coke and if you’re on benefits and doing crime you do crystal [methamphetamine],” Survey coordinator, psychiatrist Adam Winstock said.

The Australian Crime Commission described the price paid by local users as “astronomical” compared with other countries.

“When the drug is purchased in China it costs around $100 per gram; by the time it gets to Perth it’s selling for about $650 a gram,” the head of the ACC Chris Dawson said.

The 2011 Parliamentary Joint Committee on Law Enforcement similarly acknowledged the high price of drugs in Australia, noting the “extreme difference between Australian and international drug prices.”

Dr Adam Winstock says local prices are high because of the additional risk of importing drugs into Australia; a risk created by prohibition.

Quality of Australian Drugs

Drugs are also generally lower in purity in Australia, and can contain dangerous levels of deadly fillers.

In 2011, American street cocaine had an average purity of 52%, while the drug has an average purity of 19.85% in Australia.

The purity of ecstacy is also much higher in other parts of the world – pills in the UK have an average purity of 66.3% MDMA (the most common active ingredient), Danish pills have 59%, and Dutch pills have 77.5%. Meanwhile, the Australian government’s forensic facility, ChemCenter, says the average here is just 18.9%.

Prevalence of Drug Use

The 2014 United Nations World Drug Report says Australia is leading the globe in terms of recreational drug use.

Australia was found to be the world leader in ecstacy use per capita, the third highest user of methamphetamines and fourth highest user of cocaine.

Price Inelasticity

The concept of price elasticity relates to the influence of price on consumer demand.

Price elasticity is when consumers react negatively at the same rate as a price rise; for example, buy 10% less Adidas shoes when the brand’s prices rise by 10%.

The opposite principle, price inelasticity, is where consumers do not react to price changes at a corresponding rate. An example may be petrol, where a 10% price rise typically leads to a less-than 10% fall in consumption.

Surveys have found that drug use is characterised by price inelasticity; where price increases do not result in corresponding reductions in use, and that, by the same token, price falls do not cause an equivalent rise in use. This is said to be due to a range of factors, not the least of which is that habitual users will buy drugs regardless of price increases, and low prices are not normally a primary consideration for first time or recreational users.

Accordingly, it is argued that increases in prices caused by prohibition do not lead to a corresponding reduction in drug use.

Like many others, President of the Australian Drug Law Reform Foundation, Dr Alex Wodak, argues that changes in illicit drug use are fueled not by fluctuations in prices, but by growing socioeconomic inequality, mental health issues, low employment prospects and traumatic experiences.

He points out that prohibition and corresponding price increases do not decrease demand, as prohibitionists suggest, and we can only address high demand by seeing drug addiction as a public health issue and not a law enforcement issue; and focusing on providing resources to preventative and diversionary programs, rather than law enforcement bodies.