Heroin And Deforestation: Unexpected Impact Of The Oxycontin Reformulation On Mexican Forests

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 illicit crop prices affect cultivation decisions and deforestation. By examining a 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 and, particularly, on deforestation in Mexico. I employ an empirical strategy borrowed from Daniele et al. ( 2023), based on exploiting geographic variation in the agro-ecological opium poppy suitability index and the additional shock of the OxyContin reformulation in 2010. The latter led to a substitution between OxyContin, a widely used semi-synthetic opioid, 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 shock to farm-gate poppy prices reduced deforestation and agricultural and livestock activities. The reduction in deforestation continued even when poppy prices fell back to pre-2010 levels, which can be explained by an income boost channeled into off-farm work or out-migration. Overall, this paper studies a rather rare case where a price boom for a crop reduces deforestation and attempts to explain the possible mechanisms behind this relationship.