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The U.S. Opioid Crisis Hits
Tasmania’s Poppy Farmers
○ Demand and prices for the plant that produces the raw
opiate in prescription drugs are plummetingGlynn Williams, a fifth-generation Australian farmer,
is feeling the impact of a public health crisis unfold-
ing 8,000 miles away. His family plants potatoes
and raises cattle on Tasmania’s wind-swept north-
west. Williams, 48, also grows poppies, the plant
that produces the raw opiate in prescription drugs
like oxycodone, which are blamed for an epidemic
of overdose deaths in the U.S.
With the U.S. imposing stricter rules on the
use of painkillers, demand for the raw material
has tumbled. Poppy growers in Tasmania have
responded by scaling back or giving up on the
crop altogether. The state is the source of about
half of global supply, thanks to a 1971 agreement
with the Commonwealth of Australia that granted
it a decades-long monopoly on poppy cultivation.
Six years ago, poppies covered about a sixth of
Williams’s 255-hectare (630-acre) farm. Last year
he planted some 14 hectares of the pink-flowering
crop and has dialed that back to about 10 hectares
this season. “We’ve said, ‘No, we can’t afford to take
the risk,’ ” he says. “We’ve had to recalibrate our
farm significantly.”
Tasmanian poppy farmers are reeling from the
impact of government and corporate efforts to stem
the abuse of prescription painkillers and their illegal
knockoffs. The volume of opioid-based medicines
prescribed in the U.S. has dropped 28 percent since
2012 following moves by the Drug Enforcement
Administration to tighten access, according to a
report published in September by Bloomberg
Intelligence. “The prescription branded-opioid
market is at its lowest point in almost a decade,”
Bloomberg Intelligence analysts Curt Wanek and
Elizabeth Krutoholow wrote.
On Sept. 21, CVS Health Corp., one of the largest
drugstore chains in the U.S., announced a series
of measures targeting opioid abuse, including a
seven-day limit for certain prescriptions of the addic-
tive drugs. With 5 percent of the world’s population,
the U.S. consumes an estimated 80 percent of the
world’s opioids, Angus Deaton, a British-American
economist and 2015 Nobel laureate, told a Senate
committee in June.
Thebaine—extracted from poppy straw—is the
main opiate alkaloid in oxycodone, and Australia
is its largest producer, accounting for 80 percent
of world production in 2015, according to the most
recent data from the International Narcotics Control
Board, an agency that monitors compliance with$524 billion last year, up from $82 billion in 1993,
the year before the pact took effect.
After his election, Trump used the bully pulpit to
shame executives at U.S. companies that intended
to move manufacturing to Mexico. The campaign
worked for a few months, with some companies
freezing their Mexico plans. But the flow of jobs
south resumed earlier this year. New direct invest-
ment by U.S. companies in Mexico was $3 billion
in the first half of 2017, recovering from a drop to
$1.57 billion in the first half of 2016, according to
Mexico’s Economy Ministry.
Under Nafta, companies in the U.S., Mexico,
and Canada pay no duties on almost all goods that
cross the borders. Even if Trump decides to kill
the agreement, any tariffs the nations wanted to
impose would be subject to limits set by the World
Trade Organization. On average they are less than
3.5 percent for Mexico and about 7 percent for the
U.S., says Benito Berber, a senior economist for
Latin America at Nomura Holdings Inc.
Many companies would still come out ahead
because of the wage gap. A starting salary for a
Tijuana factory worker, including benefits, is the
equivalent of about $2.50 an hour, according to
Tacna’s Baldwin. The average hourly wage for
U.S. assemblers is $14.93, with the lowest-paid
10 percent in that group earning $9.24, Bureau of
Labor Statistics data show.
Plus, Mexico’s labor costs have barely changed
over the past couple of decades, while those in
China—a rival for manufacturing jobs—have steadily
risen. Intermex Industrial Parks, which provides
real estate and services for factories, says on its
website that a U.S. corporation can save $20,000
annually per worker and touts Mexico as “among
the best in labor stability.”
Kongsberg Automotive ASA, an auto-parts maker
based in Norway, has announced that early next
year it will close a factory in Easley, S.C., that makes
hoses and tubes and move production to Mexico. The
plant employs 97 workers. “There is a strong need
to become more efficient and reduce costs, which
can only be achieved by relocating the Easley man-
ufacturing operations,” Kongsberg said in August.
Halyard Health Inc. is closing a plant that makes
medical devices in Buffalo Grove, Ill., and moving
some production to Mexico, according to federal
filings. Layoffs of 85 Illinois workers began at the
end of September. Halyard has factories in at least
four Mexican cities, according to a company filing. A
spokesman didn’t respond to a request for comment.
Tecma CEO Alan Russell sees no letup in activ-
ity. “Every client is expanding, and we have signed
more new agreements,” he says. “People have
gotten used to listening to the politics, and so it’s
not as scary as it was.” —Thomas Black
THE BOTTOM LINE Higher tariffs wouldn’t be enough to
offset Mexico’s labor-cost advantage, which is why foreign
manufacturers continue to shift work there.“Growers
are now
looking at
the price
reductions
and asking
whether
it’s a viable
operation” ECONOMICS Bloomberg Businessweek October 30, 2017