The Government monopoly of opium was an inheritance from early days, and, on the introduction of the East India Company's rule, poppy cultivation was entrusted to contractors initially, but this arrangement led to a deterioration in the quality of the drug and a marked decline in the profit. Hence, in 1797, the management was made over to a covenanted officer, and the Benares Agency was established under the control of the Commercial Resident, known as Opium Agent.
The opium collected from the cultivators was despatched to the Government factories, where it was packed and thence sent down to Kolkata (Calcutta). These chests of opium were there sold by auction, and the difference between the price thus obtained and the cost of the drug, and of the establishment of the Opium Department, represented the opium revenue.
The Ghazipur Factory stands on the high bank of the Ganges, between the city and the Civil Station, and covers an area of about 45 acres. At first it was located in an enclosure on the east of the city, which was afterwards used as a charitable dispensary and subsequently sold, and later the Factory was established in a building in the district jail. The Factory was engaged in drying of opium for trade and export purposes. The manufacture of morphine and codeine in small quantities started in 1886 mainly from the adulterated opium and its washings. Another Factory at Patna, under the Bihar Opium Agency also came up during the same time.
The present site was selected in 1820 when larger premises were necessitated by the increased output and the expansion of the operations of the Agency. The Factory comprises six distinct enclosures, including the Superintendent's house on the bank of the river, the quarters for the Factory Engineer and one Assistant in the north-west corner, the guard lines on the north, built on either side of the road, leading into the city, and the large compound between the west wall of the main building and the public road, in which are situated the Superintendent's office, the Dispensary, Fire Brigade quarters, and the Institute for the largo staff of assistants employed. However, most of these structures have been changed over time. The main buildings or Factory proper, consist of an inner and outer enclosure.
In view of the diminution in poppy cultivation entailed by the restriction of exports of opium to China, the two Opium Agencies of Bihar and Benares were amalgamated, with effect from November 1910, under a single Agent with head-quarters at Ghazipur. The administrative control of the Opium Department was at the same time transferred from Bengal Government to the Government of the United Provinces, only the arrangements for the storage of opium in Kolkata (Calcutta), for the conduct of the monthly sales and for the supply of excise opium to Assam, Burma and Calcutta and its suburbs, being retained in the hands of the Revenue authorities in Bengal. The Opium Act, XIII of 1857, was amended by the Government of India in January 1911 in order to give effect to the above arrangements. As a result of the arrangement by which the quantity of Opium exported to China gradually diminished, the Government of India sanctioned the abolition of poppy cultivation in Bihar, and the closure of the Opium Factory at Patna with effect from the 31st December 1911. The demand for opium alkaloids during the World War II lead the then Government to set up indigenously designed alkaloid plant in 1942 at Ghazipur and Opium Factory at Neemuch in 1943 under the supervision of the Chemical Staff working in the Factory. The production and alkaloid could not keep pace with the growing demands of the domestic pharmaceutical industries and the export. This led to the establishment of new alkaloid plant at Neemuch in 1976.