The Dark Side of Quebec's Maple Syrup Cartel

[Syt]

http://www.nytimes.com/2015/08/23/business/international/canadian-maple-syrup-producers-clash-with-law.html

Canadian Maple Syrup 'Rebels' Clash With Law

The scenic and narrow lane that leads to Robert Hodge's sugar camp is surrounded by a cat's cradle of plastic piping that draws sap from 12,000 trees. At the end of the lane, a ramshackle hut contains reverse osmosis pumps to concentrate the harvest. A stainless steel evaporator, about the size of a truck, finishes the conversion into maple syrup.

Just one thing is missing: the maple syrup.

For weeks, security guards, hired by the Federation of Quebec Maple Syrup Producers, kept watch over Mr. Hodge's farm. Then one day, the federation seized 20,400 pounds of maple syrup, his entire annual production, worth about 60,000 Canadian dollars, or nearly $46,000.

The incident was part of the escalating battle with farmers like Mr. Hodge who break the law by not participating in the federation's tightly controlled production and sales system.

"It's a good thing that I'm not 35, 40 years old because I'd pack up all my sugar equipment that's movable, and I'd go to the United States — oh yes, in a minute, in a minute," said Mr. Hodge, 68.

While many Americans associate Vermont with maple syrup, Quebec is its center. The province's trees produce more than 70 percent of the world's supply and fill the majority of the United States' needs. The federation, in turn, has used that dominance to restrict supply and control prices of the pancake topping.

It is effectively a cartel, approved by the provincial government and backed by the law. In 1990, the federation became the only wholesale seller of the province's production, and in 2004, it gained the power to decide who gets to make maple syrup and how much.

For much of its 49-year history, the federation largely toiled out of sight. Then in 2012, $18 million of maple syrup was stolen from the global strategic reserve, a warehouse where the federation stockpiles the sweetener. Police arrested more than two dozen people in the heist, the first of whom is expected to go on trial in November.

But the federation's elevated profile exposed the controversial methods it uses to police the market. When the federation suspects farmers are producing and selling outside the system, it posts guards on their properties. It seeks fines from producers and buyers who do not follow the rule. In the most extreme situations, it seizes production.

The federation is unapologetic. It defends the system, saying it keeps prices high and stable.

"Three-quarters of our members are happy or very happy with what we are doing," said Simon Trépanier, the federation's executive director. "Those producers are living through the maple syrup production. It's their main income because we present them with a stable income."

Mr. Hodge is similarly intransigent. At this point in the season, Mr. Hodge would normally have sold his syrup, turning his attention to his cattle and other crops. But this year he had nothing to sell. He contends that farmers should be allowed to set their own level of production and sell directly to large buyers, regardless of what the law says.

"They call us rebels, say we're in a sugar war or something. I've heard rumors of that," said Mr. Hodge, at his farm in Bury, Quebec.

"Yeah, I guess you could call it that."

Across the table, Whitney, his 20-year-old daughter, who also farms, looked up from her smartphone and interjected.

"A war over maple syrup, like how pathetic can you get?"

The Early Days

For hundreds of years, when many of Quebec's families were rural, large and poor, sugaring off — the process of collecting sap from the trees and turning it into syrup — was a necessity, providing an inexpensive supply of sugar for the entire year. After World War II, sugaring became more of tradition, if a backbreaking one.

Benoit Faille, who runs an apple orchard, blueberry bush and sugar bush with his brother in Franklin, Quebec, says he remembers emptying the sap buckets on each tree with his father in the early 1960s. They would then boil down the syrup with wood cut from the forest.

"They used to use milk cans to bring it down here to can it, and I would sit between the warm milk cans on the wagon with the syrup coming down at night," he said. "It was great memories, the smell in the shanty."

The development of plastic piping in the 1970s allowed farmers to tap far more trees, letting them significantly scale up production. But the new technology did not address the industry's dubious economics.

Suitable sap flows only when the air temperature rises just above freezing, and it ends with the first burst of warm weather. Predicting the length of that highly variable period, and therefore production levels, is all but impossible.

While some producers formed cooperatives to create more financially viable operations, most were at the mercy of markets. For years, the buyers largely set prices and only took what they needed, leaving producers stuck with surpluses in high-yielding years.

"It was a little way to get a little bit of money," Mr. Faille said. "It was a sideline."

The federation changed the calculus.

In 2003, a majority of federation members voted to make production quotas mandatory, meaning farmers could sell only a certain amount each year. Farmers are required to sell all their syrup through the federation or its designated agents.

Under the system, prices have risen to 2.92 Canadian dollars a pound for the highest grades of syrup, from 2.14 Canadian dollars in 2004. In American stores, a pint goes for about $10. The shift has helped turn an annual ritual into a full-time occupation for many Quebec farmers.

"It's become an industry. It's become a living," said Mr. Faille, who is a strong supporter of the federation. "I have a neighbor here who has 45,000 taps, and that's all he does. He makes syrup."

"Now you're able to able to have bank loans to buy a maple syrup operation," he added. "They know you're guaranteed a price, you're guaranteed to sell your production every year, and the market is really stable."

Mr. Faille and his brother are both looking to retire. The family's next generation doesn't want to farm, so they have put their operation up for sale. They are selling the entire farm together, but there has been no interest in their apple orchard or blueberry bushes.

"If I decided just to sell my maple bush tomorrow morning, I would have 10 people out the door," he said.

Securing the Supply

Most of the world's syrup passes through the new and more secure global strategic reserve in Laurierville, Quebec, which opened after the heist.

A former furniture factory, it retains an industrial aura, albeit with a maple syrup scent. After the spring harvest, farmers from around the province send their syrup to the federation. For months, hand trucks and forklifts unload 600-pound barrels of syrup from tractor-trailers and cattle wagons. Inspectors use long ladles to draw samples from barrels, and then grade the syrup in a laboratory.

After that, an assembly line empties the farmers' barrels, pasteurizes the contents and repackages them into fresh white or light blue steel drums. Throughout the year, the syrup is shipped around the world to companies for bottling, flavoring and making candy.

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 lean, it releases the syrup, to maintain stable supply and pricing. (Sales of small containers to consumers at farms are exempt from the system.)

After five particularly bad seasons drained most of its stock by 2008, the federation enlarged its hoard. Stacked in barrels nine high, the reserve currently holds about 60 million pounds of maple syrup.

Prices are set by the federation, in negotiation with a buyers' group. The federation holds most of the power, given that it controls a majority of the world's production.

Such domestic systems are facing scrutiny in a global marketplace. One major hurdle in the talks over the Trans-Pacific Partnership, a major trade deal with 12 countries, has been Canada's refusal to dismantle a similar quota system for dairy and poultry farmers.

Maple syrup buyers, including some American companies, have bristled at the federation's tactics. They appreciate the steady supply. But some have taken issue with the aggressive enforcement efforts, including large fines for companies buying from Quebec producers outside the system, and the rising prices.

The situation, critics contend, could prompt buyers and producers to shift to the neighboring province of New Brunswick, and Vermont in the United States. Or consumers might simply pour artificial syrup instead.

"People will always eat chicken," said Antoine Aylwin, a Montreal lawyer who has represented several buyers in disputes with the federation, including some American companies. "But they will not always eat maple syrup if they think that they can't afford it."

Defying the Law

Mr. Hodge was shocked in 2009 when the federation demanded 278,000 Canadian dollars for not joining the system and for selling directly to a buyer in Ontario.

Most years, Mr. Hodge's sugar bush grosses about 50,000 Canadian dollars. About half the money goes to cover electricity for the vacuum pumps and oil for the evaporator.

"I'd have to give them 100 percent of what I gross for five years, and I would have nothing for production cost," he said. "That just ain't possible."

Mr. Hodge openly acknowledges that he is defying the law. When the quota and centralized selling system were introduced, he continued to sell directly to a buyer in Ontario.

At first, he flew under the radar. Then a piece of land that he rented to supplement his own property was sold in 2008, and the new owner contacted the federation to find out the quota. The game was up for Mr. Hodge.

Like others who have invoked the federation's wrath, Mr. Hodge's battle seems as much about principle as avoiding a potentially crippling fine.

In Mr. Hodge's view, the system's restrictions are stunting the growth of Quebec's industry. It is less bureaucratic and less expensive, he explains, for buyers to go to Vermont or New Brunswick. He said that he had no problem with paying the federation its 12 cents a pound tax for various services, like promoting maple syrup in new markets, particularly in Asia. But he will not adhere to the quotas.

"Well, I don't accept the system because I don't believe in not being able to sell our product," he said. "We just think that that product is ours. We bought the land. We've done all the work. Why should we not be able to sell our product the way we want as long as we legitimately put it on our income tax?"

That's a question that exasperates Mr. Trépanier of the federation. While Mr. Trépanier studiously avoids calling the organization a cartel, he has described it as the OPEC of maple syrup in the past, referring to the group of oil-producing countries. The system, he said, is doomed to collapse without production discipline.

"What you have to understand is the other producers say to us: 'I am respecting the rules. Why shouldn't my neighbor?' " he said. "The majority of the producers, they are happy about the way we are trying to stop the ones who are not respecting the rules."

Mr. Trépanier said that the federation's enforcement efforts were no different from police going after motorists who flout traffic laws. As he sees it, dissidents are refusing to settle so they can incur larger fines. The hope of producers, he says, is that judges will ultimately declare the penalties excessively harsh and dismiss their cases.

At any point, the 7,400-member federation has about 400 investigations underway, Mr. Trépanier said.

No violation, it seems, is too little to escape its notice. Inspectors regularly patrol corner stores and small supermarkets. They want to see if producers who are allowed to sell only at their farms have modestly expanded their retail presence.

Fines, which are levied through a weight-based formula, have approached $1 million in other cases. Mr. Hodge still hasn't paid.

He now owes about 115,000 Canadian dollars after the federation seized some of his provincial agricultural payments. He has run up about an additional 20,000 Canadian dollars in legal bills.

The federation also charges the producers for the round-the-clock guards. Mr. Hodge estimated that will add 40,000 Canadian dollars.

"If nothing is settled before next February, I won't sugar," Mr. Hodge said.

"They haven't won yet," he said. "They're trying awful hard, but they haven't beat us yet."

[Grey Fox]

It is what happens when you take a fringe product that has a very short production season & turn it into the sole source of revenu of a couple thousands of people.

[viper37]

Suitable sap flows only when the air temperature rises just above freezing, and it ends with the first burst of warm weather. Predicting the length of that highly variable period, and therefore production levels, is all but impossible.

It's a little more complicated than that.  You need air temperatures just above freezing during the day and just below freezing during the night.  Anything below or above that threshold and the maples won't produce sap at all, or very low quality sap that is not useful for syrup production.

Also, it's not a cartel.  Cartels are illegal and leads to nasty things like inquiry boards that cost taxpayers hundreds of millions of dollars.
We prefer "state approved oligopoly with supply controls".  Sounds better

There are quota systems for dairy products, construction workers (with some very small exceptions), eggs&poultry, maple syrup, softwood lumber (with some big exceptions) and trembling aspen lumber.

Yes, it's silly.

[Jacob]

"Cartel" does not imply that the activities are illegal. The definition of a cartel is "an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition." So the maple syrup cartel is pretty much a text definition of a cartel.

[The Brain]

Drug cartels are more of a problem IMHO. They control a much bigger market.

[Barrister]

If there are so many advantages to belonging to a cartel then surely most producers will voluntarily join up.

Personally though, I am not a fan of Canada's supply management systems.  It might be good for producers, but is lousy for consumers.

[The Brain]

From a Swedish perspective it comes across as extremely Socialist.

[mongers]

From a Swedish perspective it comes across as extremely Socialist.

Similar 'latitudes'.

[Barrister]

From a Swedish perspective it comes across as extremely Socialist.

If it was socialist you'd think it would benefit consumers.

[The Brain]

From a Swedish perspective it comes across as extremely Socialist.

If it was socialist you'd think it would benefit consumers.

[Grey Fox]

From a Swedish perspective it comes across as extremely Socialist.

If it was socialist you'd think it would benefit consumers.

It insuring that farmers have enough money to live. Consumers play almost no part in the decision process.

[viper37]

It insuring that farmers have enough money to live.

Not really.

Sure, they sell at higher prices, but they need to purchase production quotas, money that could otherwise be spent on increasing productivity.

[viper37]

If there are so many advantages to belonging to a cartel then surely most producers will voluntarily join up.

Like all cartels, it benefits big, well established producers.  Newcommers have a hard time entering the market and low level producers don't see much benefits in it.

[Grey Fox]

When you buy a quota, you are buying a guarantee of revenu.

[viper37]

When you buy a quota, you are buying a guarantee of revenu.

You are voluntarily limiting your production so that you create a shortage of the product.  Like OPEP, when they want to jack up prices, thyey reduce production.  When they want to flood the market and destroy alternative sources of oil or competitive energy, they produce more.

They could produce more milk/maple syrup for an inferior base costs and sell it for less to consumers, while still keeping decent profit margins.  They could seek to expand their market, seek exportations, reduce importation or alternative products (corn syrup, or milk importe for big cheese makers), but they prefer the actual system.