The Strategist

What if Maple Syrup Producers Follow OPEC's Footsteps?


11/13/2015 - 14:32



The Federation of Quebec maple syrup producers (FPAQ) tries to control their product’s price almost the same way as OPEC does with oil. All syrup producers in the province must belong to FPAQ (otherwise, their production will be confiscated). The organization’s members are limited by specific output norms, or quotas.



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Any surplus of syrup comes into FPAQ warehouses. Farmers are paid only when the production is sold, often it happens in another several years. The main goal is to maintain high and stable prices with a limited supply. However, just like most cartels, FPAQ undermines its own future.

Quebec is like Saudi Arabia for the maple syrup market. The province accounts for 71% of the sweet product’s global volume. However, just like with jump in oil industry in recent years, the record high prices stimulate increase in supply.

Maple syrup harvest in the United States increased from 7.2 million liters in 2012 to 35 million liters in 2014. New York State alone has more maple trees than entire Quebec, although few of them are used for juice extracting. It should be noted that prior to the 1930s, America produced more syrup than Canada (and they can make it back again).

In addition, high prices for maple syrup limit its consumption and encourage use of artificial substitutes. Even today, in America, there is a cheaper corn alternative to the well-known product.

For example, artificial pancake syrup Aunt Jemima’s share of the US market is currently equal to all brands of natural maple syrup.

FPAQ actively promotes the beneficial properties of the product, but it is not possible to obtain new markets. The annual export volume (26 million liters) has not changed for more than a decade. Approximately 85% of FPAQ foreign sales occur in Europe and America (the same figure as in 2008).
 
Nowadays, farmers produce a lot more syrup than the federation can sell. The "strategic reserves" have already increased to 25 million liters, that is, almost annual sales volume.

Considering rapid growth in the American maple syrup production, FPAQ have three options: to reduce the quotas for its members, increase stocks further, or let prices collapse.

The first two options would inevitably lead to a loss of market share, while high prices will remain for the US competitors.

However, Saudi Arabia’s strategy (which allows prices to fall to a record low, hoping it would bankrupt competitors from more expensive oil production) is not likely to help FPAQ. Production costs in the maple plantations are extremely low, so it is difficult to expect that the US will stop the syrup’s release even at minimum prices.

source: economist.com