As published originally by the Financial Post:
Sugaring season is still several months off yet, but American maple syrup producer Emma Marvin is already thinking about selling her syrup into the Pacific. “Japan and South Korea certainly offer really interesting markets,” she said. “There is considerable opportunity there.”
Marvin is a second-generation owner of Butternut Mountain Farm, one of the largest producers and distributors of maple syrup in Vermont. Her business is just one example of an American firm that stands to gain under the recently announced Trans-Pacific Partnership (TPP), the trade agreement among 12 countries that surround the Pacific, including Canada and the United States, which is currently awaiting ratification.
Maple syrup producers, all of whom are in Canada and the U.S., will gain new market access under the deal. Japanese maple syrup tariffs of 17.5 per cent will be axed within three years after the deal is implemented. Vietnam’s three per cent import tax will also be dropped.
“(The TPP) will certainly make pure maple syrup more accessible, as it will have an impact on the consumer prices,” Marvin said. “I think that can only be a good thing for us.”
But Canadian maple syrup might not fare as well as the American stuff under the trade agreement. That’s because so much of it is regulated through a quota system in Quebec, where 90 per cent of the nation’s supply is produced.
“The TPP may actually make things worse for Quebec, because you’re allowing everyone to sell at a cheaper price,” said Sylvain Charlebois, a food-policy researcher at the University of Guelph.
When entering new markets, he said, it’s best for marketers to employ what is called a “skimming” approach to pricing, slowly increasing the price as they gain traction. So, American producers can set their price lower than Quebec’s regulated price, in order to win market share and get their foot in the door. “The set-up right now in Quebec does not support lower prices,” Charlebois said.
The cut in tariffs is significant for an essentially luxury product: a barrel of maple syrup would sell for more than $1,800 dollars this year, 25 times more expensive than the year’s average price of Brent crude oil. Japan is the second-largest importer of Canadian maple syrup, popular there because it is considered to be a natural product, healthier than other sweeteners.
In a summary document, the federal government said the TPP “will help Quebec’s maple syrup and maple sugar producers take advantage of the tremendous opportunities in these (Pacific) countries, and ensure that Quebec’s maple industry remains a global leader.”
But the federal government left out mention of the Federation of Quebec Maple Syrup Producers, the group that sets prices and allots production quotas. Bulk producers are allowed to sell a certain amount of their production each year and excess must be sent to the federation’s strategic reserve.
For American producers like Marvin, the advantages created by Quebec’s supply management have been significant. The artificial price threshold has encouraged new U.S. producers to tap into the business and over the past three years, Quebec has gone from producing 80 per cent of the world’s supply to 72 per cent, while U.S. producers have increased their share of the market to 23 per cent from 16, according to a report by consulting firm Forest Lavoie.
“Within a couple of years, we’re going to be down to 60 (per cent),” said Steve Côté, a maple syrup producer based in St-Matthias-de-Bonneterre, Qc. Côté runs a farm of 25,000 taps, and produces on average about 5,000 gallons per year.
A few years ago a group of students from the University of Syracuse visited Côté’s farm. They told him that according to their survey, the state of New York could support 75 million maple syrup taps. “Right now here in Quebec I think we have 43 million taps,” he said.
Côté’s farm sits just five minutes from the U.S. border. “I can see what they have on the other side. They can produce as much as they want, and they can sell wherever they want. That’s the way it should be.”
Daniel Dufour, general manager of the Maple Industry Council, which represents the main buyers and processors of maple syrup in Quebec, said the inroads being made by American producers into a historically Canadian market is concerning. “It’s part of our reality that the Americans find this market attractive. It’s a total free market in the U.S. and they want to produce more.”
And maple syrup sales are only expected to increase in Japan, said Dufour. According to the Maple Industry Council, Quebec’s exports to Japan in 2014 were close to $30 million. Producers and buyers hope that the elimination of tariffs will drive that even higher. And U.S. producers, who don’t have production limitations or set prices, will be in a position to take on what The New York Times has dubbed the Quebec maple syrup cartel.
But Paul Rouillard, deputy director of the Federation of Quebec Maple Syrup Producers said critics of the system don’t take into account that the federation adjusts market supply and prices every year, based on current market conditions. So if the TPP was expected to increase demand, then the federation could take that into account when fixing production and prices for that year.
But predicting future demand is difficult. “It’s very hard to forecast” how much demand will increase under the TPP, said Dufour. Regions that have the flexibility to respond to increases in demand quickly may get the sweeter deal.
And Charlebois, the University of Guelph professor, said he doesn’t think Quebec’s system will prove to be as nimble as its neighbouring rivals. “The competition is more flexible to develop new foreign markets than Quebec, which is why other regions like Ontario and the U.S. have the advantage,” said Charlebois. “I just don’t think they have the right strategy to grow the sector in Quebec.”
Sarah Reid is a journalism fellow at the Munk School of Global Affairs in Toronto.