The Australian Crime Commission (ACC) has released figures showing police arrested almost 84,000 people in relation to illegal drugs last financial year.
The Illicit Drug Data Report found authorities seized more than 13 tonnes of illegal substances and discovered almost 450 clandestine drug labs.
The report says the number of drug busts involving cocaine is at a record high level, with seizures at Australian borders up 71 per cent.
Two-thirds of all drug-related arrests in Australia between 2008 and 2009 were cannabis-related, but overall the percentage of people using cannabis has fallen 50 per cent over the past decade.
Amphetamine-type stimulants were the next most popular drug.
Home Affairs Minister Brendan O'Connor says police are discovering more clandestine drug laboratories.
There were 449 detections of such laboratories in this financial year... two-thirds of which, quite disturbingly, are in residential areas, he said.
Queensland had the highest level of drug labs, with around one-third of the national total being found there.
Detective Inspector Mark Slater from Queensland's drug investigations unit says drug labs are operating in all types of residential areas around Australia.
Detective Slater says the labs are often set up so they can be easily moved.
Our labs are small, what we call addiction-based labs, which are easily transportable, he said.
In those instances there will be occasions where you find them in vehicles, in hotel rooms in particular.
He says busts are often made as a result of tip-offs from the public because there are usually signs if a drug lab is operating in a neighbourhood.
The main thing the community probably would become aware of would be unusual or strong chemical odours in the vicinity of their homes or work environments, he said.
You'll find particularly in a residential area that people come and go on a regular basis and it may not necessarily be that a premises is occupied 24/7, it could be that it's just used for production purposes.
You'll see the signs of chemical containers and drums and waste products being moved in and out of the property. Other things like hoses and pipes and a range of things like that.
Meanwhile, Australian Federal Police Commissioner Tony Negus says many illicit substances continue to be imported from overseas.
Obviously we have people stationed in Afghanistan at the moment working with the Afghani national police to look at how drugs are actually shipped throughout that part of the region, he said.
We have liaison officers in that part of the world too, in Afghanistan, Pakistan, and south-east Asia, also looking at how shipment routes end up in Australia.
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