Saudi Quebec

Ken Gorrell

by Ken Gorrell,
Weirs Times Contributing Writer

It was in the upper 80s yesterday and the leaves are beginning to show fall colors, so it’s perhaps a strange time to be writing about maple syrup production. But economic lessons are eternal, not seasonal. Our neighbors to the north are learning one of those lessons now: Market forces and human nature will eventually crack a cartel.
OPEC is perhaps the most famous cartel of the modern era. Those of us who lived through the oil embargo of 1973 and the price shock of 1979 could be forgiven for thinking that the cartel of oil-producing nations is an exception to the economic rule. Controlling most of the production of a commodity essential to modern economies kept the now-14 nation cartel in a powerful position for decades, but even mighty OPEC has been laid low. Thanks to hydraulic fracturing (fracking), greater efficiencies, and energy substitutes, OPEC founding member Saudi Arabia is facing an “existential crisis” according to a report in the UK Telegraph. The shale rebellion caught the Saudis flat-footed and has OPEC playing defense. Cry me a river of oil, as I fill my tank with under-$2 a gallon gasoline.
The world can’t get by without oil at any price. The same can’t be said of maple syrup. While I won’t eat pancakes without the real thing, the Quebec maple cartel – the Federation of Quebec Syrup Producers – doesn’t have the global economic import of OPEC. But it does control 70% of the maple syrup market, though that share has fallen from 80% over the past few years. Recently Bloomberg News reported (“Maple Syrup Cartel Battles a Black Market Rebellion”) that the Federation has decided to raise production 12% next year in a bid not only to regain that lost market share, but also to deal with dissent within its ranks.

The Federation is a non-governmental agency that nonetheless has the power to levy significant fines and/or confiscate excess production from wayward members. Even with its near-monopoly powers it has been in “herding cats” mode for years trying to keep 13,500 Quebec sap farmers in line. Some of these farmers have been selling syrup on the black market, undercutting prices and preventing the Federation from maintaining strict production quotas. It also had to deal with the ignominy of having some of its “strategic reserves” stolen from under its nose.
Just as the US has a strategic oil reserve, Quebec has a syrup reserve designed to absorb production that, if sold, would lower prices below the Federation’s target. The reserve also acts as a buffer to meet demand in bad production years. In 2012 auditors discovered that 6 million gallons of syrup were missing from the reserve; nearly 60% of the stockpile. Three ringleaders were eventually arrested, but not before they had sold about a third of the liquid gold at market prices in neighboring provinces as well as across the border in New Hampshire and Vermont.
Worse for the Federation, though, is the growing competition to meet the growing demand for this natural sweetener. Even as it has raised production in recent years and developed new markets in Asia, it has lost market share thanks to farmers in New Hampshire, Vermont, Maine, and New York. According to Bloomberg, U.S. production totaled 4.2 million gallons this year, and increase of 23% from 2015. Vermont accounted for 47% of the total. The number of taps has risen nearly 50% since 2007, thanks in part to the plastic hoses and collection barrels that have been replacing the traditional small metal buckets that were such a welcome early-spring sight.
So as with any cartel, the Quebec syrup producers can’t beat back market reality and human nature. Supply, demand, substitutes, and self-interest (what some misguided folks call “greed”) all work against those who try to control a market. Just as OPEC failed to anticipate and deal effectively with new oil-production technologies and a sustained global recession, the Quebec syrup federation has been unsuccessful at growing its market share even as demand increases.
Loosening production quotas next year will satisfy some sappers, at least until lower prices hit them in the wallet. Heavy-handed tactics will keep some in line, but will foment dissent in others. How heavy? In 2013, the Federation took more than 100 maple syrup drums from one producer accused of selling syrup outside the system. They have since taken some of his product each year and posted guards to his property to monitor production.
It’s a sweet economics lesson; one I hope is presented in classrooms across the state.

 


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