Maple syrup is a sticky business in Quebec. The establishment of a government-sanctioned cartel in 2000, which was later backed by a stringent quota-based system in 2004, compels over 7,000 producers to sell high volumes of the golden syrup. About 700 small farms are exempt from this system, and can sell directly to the public.
Unsurprisingly, the goal of this cartel is to keep market prices and farm gate cash receipts relatively stable, and it has worked – for those fortunate enough to actually own quotas. For other growers and consumers alike, the cartel’s effectiveness is perceived very differently.
Initially, the business case for a cartel was compelling. First, the crop is highly vulnerable to unfavorable weather conditions, and requires optimal temperature patterns for just a few weeks. As a result, production varies from one year to another. If too much product is produced, surpluses are warehoused and managed by what is called a strategic reserve. When the harvest is poor, producers can rely on the reserve to fulfil domestic orders and international contracts. Mitigation volatility, so to speak.
To a certain extent, the idea has merit; after all, Quebec is an influential player in this marketplace. For example, it produced almost 71 percent of the world’s 160 million pound maple syrup yield last year. For some time, the province’s control of the maple syrup industry was equivalent to OPEC’s influence on oil prices – what happened in Quebec mattered to the North American market.
However, many are now questioning whether this is a sustainable strategy. Quebec has lost many mid-sized commercial maple syrup farms, many of those too small to build viable economies of scale, and that produce too much to sell direct. If one of the cartel’s strategic intents was to support all farmers equally, it has failed miserably.
In addition, cartels tend to serve those already connected to the system. Once it is established, the chances of others gaining access is nearly impossible; as a result, entrepreneurs who may have an interest in producing maple syrup and who may have innovative ideas are often out of luck. It is the same phenomena with supply management in dairy and poultry.
What is most worrisome, however, is the erosion of Québec’s global influence. Maintaining high prices, thanks to the cartel, has given U.S.-based producers a sweet tooth. Several U.S. states, including Vermont and Maine, have recently increased production, and this trend is continuing. Even New York State has produced more maple syrup than Ontario last year, our country’s second highest producer.
The U.S. still has a long way to go before matching Québec’s output, but it is steadily catching up. To make matters worse, Canada’s global reputation was affected by a 2012 “great maple syrup heist” that brought unwanted attention to Québec’s maple syrup cartel. To say that the incident was an embarrassment is an understatement; while many were convicted for stealing over $18 million worth of maple syrup, the damage was already done and many have criticized Quebec’s dominance of the industry.
As with any domestic cartel, the biggest challenge is to have all involved adhere to the rules. Some outliers remain in the maple syrup industry, and many of them have been sued. In fact, the Federation responsible with maintaining the integrity of the cartel has allegedly spent more than $300,000 in legal fees to prosecute its own members. More than $1 million in fines have been paid out by farmers for contravening the quota system in Quebec.
These funds could have been used to market maple products abroad, as well as funding for applied research to find new uses for the commodity. Unfortunately, too much is earmarked to perpetuate internal feuds and support endless court battles.
As for consumers looking for bargains, don’t hold your breath. With this cartel, the only direction maple syrup prices will go are up. A great way to expand market shares, isn’t it?