Friday, June 7, 2013

The Economics of Maple Syrup

It sounds like the plot-line from a crime-caper-gone-wrong movie, but Canada's global strategic maple syrup reserve was drained of $18 million worth of syrup last fall. robbed last fall. Jacqueline Deslauriers tells the story in "Liquid Gold," in the June 2013 issue of Finance & Development. She tells the story (citations omitted for readability) :

"Although its value to the Canadian economy may pale in comparison with, say, wheat or soybeans, maple syrup trumps the vast wheat fields of Manitoba and Saskatchewan when it comes to Canadian cultural identity. It is for good reason that the maple leaf is Canada’s best-known symbol. Canadians’ deep attachment to this exotic food shapes their attitude toward protecting the price farmers receive for producing maple syrup.­ ... Maple trees, the source of maple syrup, grow naturally in eastern North America. Canada produces 80 percent of the world’s supply of maple syrup, and the province of Quebec, where the heist took place, accounts for 90 percent of Canada’s production ...

"The Federation of Quebec Maple Syrup Producers was set up in 1966 to represent and advocate for producers—most of them dairy farmers who supplemented their income by tapping maple trees. By the 1990s, maple syrup output had grown rapidly, and by 2000 the industry was producing a surplus of between 1.3 and 2 million gallons a year. Because maple syrup is so easily stored, in bumper years the 80 licensed maple syrup buyers from Canada and three U.S.-based buyers stocked up at low prices, and bought less during lean years when prices tended to be higher. By and large, farmers were at the mercy of the buyers. ...

"Things changed in 2001, when a bumper crop of almost 8.2 million gallons of maple syrup sent prices plunging. That prompted producers to change the federation from an advocacy group to a marketing board that could negotiate better prices with the buyers. ... The new-look federation also began to store surplus production to keep prices from plunging.  Initially, individual farmers were free to produce as much as they wanted.  But another bumper crop in 2003 resulted in so much syrup, much of which had to be stored, that the industry decided to control production by imposing quotas on individual producers.­...  Because production has been lean in the past few years, producers currently can sell 100 percent of their quota. If there are a few bumper crop years, the cartel can reduce the amount that farmers are permitted to sell.­

Any output that cannot be sold must be transferred to the federation’s reserve. Producers do not receive payment for this excess production until the federation sells it.... Maple syrup is sold from the reserve when current production does not meet the demand from authorized buyers. In 2009, after four dismal years of production, the global maple syrup reserve ran dry. Since then production has bounced back and the reserve is overflowing.­...

The $18 million theft was from one of three warehouses the federation uses to stash excess production and was discovered in mid–2012 during an audit of the warehouse contents. The warehouse, about 60 miles southwest of provincial capital Quebec City, was lightly guarded—in retrospect, perhaps, too lightly guarded. The thieves set up shop nearby, and over the course of a year, according to police, made off with roughly 10,000 barrels of maple syrup—about 323,000 gallons, or about 10 percent of the reserve. Because one gallon of Quebec maple syrup looks like any other gallon of the product, consumers had no way of distinguishing the federation-approved product from stolen syrup. And some buyers may not have cared.­

It appears the thieves attempted to unload their booty to buyers in other Canadian provinces and the United States. Officers from the Royal Canadian Mounted Police, the Canada Border Services Agency, and U.S. Immigration and Customs Enforcement helped the Quebec provincial police with their investigation. Police arrested three suspects in December 2012 and 15 more soon thereafter. Those arrested faced charges of theft, conspiracy, fraud, and trafficking in stolen goods. Police have recovered two-thirds of the stolen syrup.­"
Teachers of economic in search of a new and lively example might stick a fork in the maple syrup example. I've poured attention on maple syrup issues in the past. Back in September 2012, I posted on "The Great Maple Syrup Theft: A Supply and Demand Story."