Guest post by Christopher Sullivan
Did you know that Quebec produces 70% of the global supply of maple syrup? Did you know that all that maple syrup is controlled by a cartel known as the Federation of Quebec Maple Syrup Producers, backed by Canadian Law? Similar to how OPEC controls oil production and prices in the Middle East, the Federation sets mandatory quotas and requires farmers to sell syrup through designated agents or through the federation itself. It is actually illegal for individual producers to sell syrup on the free market. The logic is that the federation protects farmers from the unpredictability of weather, keeping prices high and stable. To keep prices high the federation enforces strict quotas for the province’s 7,400 producers. Instead of flooding the market during years with bumper crops, all syrup produced beyond that amount is stored in the federation’s warehouse, which helps prop up prices by limiting supply. When seasons are less productive, the federation releases the syrup to maintain stable supply. The syrup is stored in 600-pound barrels and either shipped to buyers around the world or stored in warehouses.
However, centralized control of maple syrup worth hundreds of millions of dollars can cause problems and not all suppliers are happy with how the federation makes and enforces quotas. If a producer makes 45 barrels one year and the next year is really good and they make 60, they want to get paid for the 60. But once the farmer has filled the quota, the surplus, no matter how large, is retained until they sell it, which can be years. There is a small percentage of Canadian maple syrup farmers who are actively against the cartel and they have the odds stacked against them. The federation can seize equipment and levy fines for producers who sell on the open market and they win most court cases suing farmers for not complying with the rules. Truly the kingpins of maple syrup, federation maintains some control of producers outside of Canada as well. Producers in the United States and Europe have to compete with Quebec so they are forced to set prices in accordance with the federation. If you want to compete in the maple syrup market your prices have to be competitive so you may be forced to sell at a price below what the market would truly bear. This may keep profits artificially low for many maple farmers.
Originally, the Federation of Quebec Maple Syrup Producers was meant to represent and advocate for producers but when maple syrup supply began to outgrow demand in the early 2000s and farmers became acutely at the mercy of gyrating market conditions, the federation began directly negotiating prices with buyers. This is when the strategic maple reserve came into existence and the federation began storing surplus syrup in warehouses and the federation’s focus switched from advocacy to supply management. There is a lot of debate about the economics of a supply controlled industry. Typically, higher prices attract new producers and/or new techniques but quotas are a major barrier to new entrants and a deterrent to innovation because a producer can’t snag a larger market share. Basically, cartels work well to address an underlying market failure - like over farming or depletion of natural resources - but the benefits of supply management are typically greater for larger producers than for smaller ones.
Economic conditions such as these are the perfect backdrop for subterfuge, demonstrated by the 2012 maple syrup heist where dessert bandits took off with $18M worth, or 10,000 barrels of Quebec maple syrup. The warehouse was lightly guarded and the thieves took up shop nearby and over the course of a year removed the syrup and sold it on the open market in other Canadian provinces and the United States. Three suspects were arrested and charged with theft, conspiracy, fraud, and trafficking in stolen goods and police have recovered only two-thirds of the stolen syrup. The heist drew a lot of attention to the maple syrup cartel and highlighted the friction between supply management and free markets. The federation isn’t likely to lose its hold over production, however, and Canada will continue to dominate the global syrup market for the unforeseeable future. But the heist will not be forgotten. A film about the theft will be coming out in 2017 starring Jason Segal, directed by Seth Gordon.
Christopher Sullivan is a business analyst and financial consultant from Boston, a proud father of a Pug named Olive and a cat named Kevin, and a voracious consumer of Sap Hound maple syrup.
To learn more about the cartel, the heist, and the economics of maple syrup supply management, see these links bellow:
To see an illustrated account of the heist by Modern Farmer magazine, click here: