How Sweet It Is! The Maple Syrup Cartel Crumbles
Economists have long argued that irresistible market forces will crush a cartel that inefficiently restricts supply and raises the price of a product. These forces are: (1) external competition from new entrants into the industry eager to profit by expanding supply and undercutting the high cartel price; and (2) internal competition from smaller and more efficient members of the cartel who "cheat" by offering secret price discounts to buyers and covertly violating cartel production quotas to steal market share from the other members. While these competitive market forces swiftly destroy free-market cartels, they work more slowly to undermine even cartels established or propped up by governments, such as the OPEC oil cartel and the generations-old De Beers diamond cartel.
A few days ago, it was reported that the Federation of Quebec Maple Syrup Producers is beginning to self-destruct. The cartel comprises the province of Quebec's 13,500 sap farmers and accounts for 71 percent of the world supply of maple syrup. The Federation has existed for 50 years, but between 2002 and 2004 it was transformed into a government sanctioned cartel with production and sales quotas, that is, legal restrictions on the amount each farmer could produce and sell. Any producer in Quebec defying these limits on output is subject to legal action that may result in fines and asset forfeitures. The cartel also holds a stockpile of 60 million pounds in order to maintain the cartel-fixed price in the event of fluctuations of demand. Over the past decade the cartel has succeeded in boosting prices by 34 percent. In the past three years the price of the top two grades of syrup has risen by 6 cents a pound to C$2.95, despite the fact that agricultural prices in general have slumped during that period.
Fortunately for consumers, the Federation is beginning to face the main problem that typically afflicts an anti-competitive cartel: new and hungry entrepreneurs lured into the industry by the prospect of high profits. Thus, although world demand for maple syrup and other natural sweeteners has been growing, Quebec's share of global supply has fallen by 10 percent in the last decade. Quebec growers are chafing at the bit to increase their supply to meet increasing competition from farms located in other parts of Canada and the northern US. And, despite the threat of legal penalties, many of the growers have taken to selling on the black market. Furthermore, there is strong evidence that external competition will only intensify in coming years. The number of taps in the US increased by 45 percent to 11.9 million between 2007 and 2015. Moreover, only 6 percent of the 200 million easily accessible maple trees are being exploited in the US. In northern Vermont, private investors have been buying up land to further expand the global supply of syrup and put downward pressure on the cartel price. In Canada itself, Ontario has 108 million trees available to tap.
With most Quebecois farmers clamoring for an end to the restrictive quotas and even a report commissioned by Quebec's Agricultural Minister questioning their efficacy, it is clear that the cartel is on its last legs. But some farmers are worried about what will replace the cozy arrangement of the monopolistic planning of syrup production and prices. One farmer lamented:
The system before was anarchy. You didn’t know what to expect.
He is of course referring to the ordered and beneficial "anarchy" of the free market, in which producers do not live quiet and comfortable lives and collect their monopolistic gains but must continually strive to forecast and adapt their production to the fickle demands of consumers.