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Jim Lattanzi, owner of Hollis Hills Farm, holds up a bottle of his maple syrup at the farm in Lunenburg, Massachusetts June 26, 2013. Picture taken June 26, 2013. To match story USA-SUGAR/QUOTAS REUTERS/Brian Snyder (UNITED STATES - Tags: SOCIETY BUSINESS FOOD)
Reuters/Brian Snyder
Liquid gold.
STICKY WICKET

Canada’s strategic maple syrup reserve and the economics behind it

By Matt Phillips

As far as oddball strategic reserves go, Canada’s Global Strategic Maple Syrup Reserve is a perennial favorite. (America’s National Helium Reserve and China’s strategic pork hoard are usually up there, too.)

But it should be said that Canada’s maple syrup stockpiles aren’t a government undertaking. They belong to the Federation of Quebec Maple Syrup Producers, a cooperative marketing group that includes all large-scale syrup producers in the French-speaking province. As Quebec produces roughly 70% of the world’s maple syrup, the Federation—which has been around since 1966 and opened the reserve in 2000—is the OPEC of the syrup world. The group uses the syrup reserve, consisting of three separate facilities in Quebec, to stabilize prices by socking syrup away when prices are low and selling its sticky inventories in order to add supply when prices are too high.

The cartel system is just one type of structure that’s developed over the years to try to manage the volatile price swings in commodities markets. (One need only look at the tremendous collapse of oil prices in 2014—brought on by surging supplies of US oil and weakening global demand—for a refresher course.)

In the US, volatile swings in commodities such as oil were answered, historically, with corporate attempts to control everything from production to retail pricing. (John D. Rockefeller’s Standard Oil was just that, until a 1911 antitrust decision from the Supreme Court splintered the companies into 34 separate concerns.)

There have been other types of approaches, too. For instance, when overproduction imperiled the US oil and gas business in the early 1930s with the discovery of massive oil fields in east Texas, state and federal government authorities stepped in by helping to create the Interstate Oil Compact, a cartel-like organization of states that more or less enforced oil production quotas aimed at lifting prices.

Of course, the age-old problem with cartels is making sure everybody adheres to the terms. And Quebec’s syrup producers are no different. As Canada’s Globe and Mail reports in a piece on the syrup reserve:

All Quebec producers using containers more than five litres have to sell through the system. A small band of outliers still refuses to take part, and the federation is suing them.

“Basically, they are free-riders,” [Federation president Simon] Trépanier says, adding that, even if they do not want to be involved, the dissenters benefit from the system.