"Purity levels and seizures (in main consumer countries) are down, prices are up, and consumption patterns are in flux. This may help explain the gruesome upsurge of violence in countries like Mexico. In Central America, cartels are fighting for a shrinking market," he said.
Use of cocaine declined in the US, the world's largest cocaine market, while in Western European countries it began to stabilise for the first time after years of increases, the report said.
However, while the drop in production was "encouraging," the UNODC said the production of amphetamine-type stimulants, which include amphetamines, methamphetamines and ecstasy were on the rise.
Some European Union states had become the main suppliers of ecstasy while Canada had become a major trafficking point for methamphetamines and ecstasy.
Massive production laboratories had sprung-up in South-East Asia, the report said, and the seizure of amphetamines in the Middle East rose.
In 2007, Saudi Arabia seized one third of all amphetamine group substances in the world, greater than the combined total of China and the US, according to the report.
Dr Sandeep Chawla, research director of the United Nations office of Drugs and Crime, said that the rise in amphetamine-type use and production all over the world was a surprise to the agency.
"[Synthetic drugs] are made from chemicals that are widely available for industrial uses; they are hard to control because it is like finding the proverbial needle in a haystack," he told Al Jazeera.
"[These drugs] can be produced very close to the centre of consumption, unlike botanically-based drugs, where there are often several thousand miles between the place where you produce the drugs and the place you consume them."
Costa recommended medical treatment for drug users as opposed to "criminal retribution" but warned against the full legalisation of drugs as "an historic mistake".
"Proponents of legalisation can't have it both ways," Costa said.
"A free market for drugs would unleash a drug epidemic, while a regulated one would create a parallel criminal market. Legalisation is not a magic wand that would suppress both mafias and drug abuse," he added.
There was a fall in consumption of cannabis in developed countries, the most widely used illegal drug in the world, the UNODC said.