KABUL (Reuters) – Opium prices in Afghanistan more than doubled last year after disease cut production in half, the United Nations said, creating a "cash bonanza" for many farmers that could drive up cultivation of the drug in 2011.

Production of opium, a thick paste from poppy that is processed into heroin, fell by nearly 48 percent in 2010 due to an unidentified blight, causing prices to soar and raising the average annual income of poppy farmers by more than a third, the U.N. drug agency UNODC said Thursday in an annual report.

Afghanistan has long been the world's leading supplier of opium and, despite last year's drop, still managed to produce almost 80 percent of global supply. It was 90 percent in 2009.

Most of the drug is exported in a thriving world trade worth billions of dollars. Taliban-led militants are believed to derive $100-$400 million a year in revenues from production and trafficking of the drug, fuelling insecurity across the country.

"There is cause for concern. The market responded to the steep drop in opium production with an equally dramatic jump in the market price to more than double 2009 levels," said Yury Fedotov, Executive Director of UNODC, in a statement.

"If this cash bonanza lasts, it could effectively reverse the hard-won gains of recent years."

Opium eclipses wheat as money spinner
While the overall amount of land used for growing poppy in Afghanistan remained unchanged from 2009 -- 123,000 hectares -- some areas showed "alarming" increases in cultivation including the eastern province of Nangarhar with a 145 percent spike.

Cultivation had been steadily declining since 2007 -- mainly because of economic factors and bad weather -- but production levels had decreased more slowly because of record high yields.

In 2010 farmers were estimated to have earned $605 million from opium, up 38 percent from 2009 and equivalent to around 5 percent of Afghanistan's GDP, up from 4 percent in 2009.

In 2009, wheat prices rose and poppy prices fell, giving farmers a reason to reconsider what crops they planted for the coming year. In 2010, the reverse was true, with farm-gate opium prices at times nearly tripling to $169 per kg of dry opium.

The ratio between gross income from opium and wheat was 6 to 1 last year, the highest since 2008, the report said, giving farmers a "strong incentive to continue growing opium."

However, while farmers earned record profits from opium last year, the gross export value of opiates, which includes processed heroin, fell by 50 percent on 2009 to $1.4 billion, suggesting a drop in trafficker revenues, the report said.

Output for 2010 was estimated at 3,600 tons compared to some 6,900 tons in 2009. In recent years, Afghanistan has managed to produce thousands of tons more than the entire global demand for the drug.

Aside from leading the world in opium output, Afghanistan has become the biggest producer of hashish, or cannabis resin, turning out between 1,500 and 3,500 tons a year.

Foreign drug enforcement agencies are increasingly seeking to curb the opium trade as part of the wider battle against insurgents in Afghanistan.

Violence is at its worst since the Taliban were overthrown in late 2001, with casualties on all sides now at record levels.

Some 98 percent of all poppy cultivation in 2010 was in only nine provinces, including the country's most insecure regions.