Rapport Gagné - Version Anglaise

7/25/2019 Rapport Gagn - Version Anglaise

1/71

FOR A STRONG AND

COMPETITIVE MAPLE

INDUSTRY

21 MEASURES FOR GROWTH

FOR HARMONY

FOR PROGRESS

Report prepared by:

FLORENT GAGN

December 2015


2/71

1


3/71

2

Table of contentsINTRODUCTION.................................................................................................................................4

MANDATE........................................................................................................................................................ 4

STUDY METHODOLOGY AND PROCESS........................................................................................................... 4

SUMMARY ........................................................................................................................................7CHAPTER 1: A UNIQUE BUSINESS MODEL ................................................................................ 10

1.1 QUBECS MAPLE INDUSTRY: AN OVERVIEW..................................................................................................... 10

1.2 AHIGHLY REGULATED SECTOR.......................................................................................................................... 11

1.3 THE ORGANIZATION OF THE MAPLE INDUSTRY...................................................................................................... 12

1.4 TIME TO TAKE STOCK .......................................................................................................................... 14

CHAPTER 2: A GLOBALIZING INDUSTRY IN AN EVOLVING MARKET ....................... 15

2.1 ATHRIVING INDUSTRY ............................................................................................................................. 15

2.2 AMORE COMPETITIVE GLOBAL MARKET ............................................................................................................. 18

2.3 THREAT OR OPPORTUNITY?............................................................................................................................ 202.4 PROMOTION AND MARKET DEVELOPMENT ................................................................................................ 22

CHAPTER 3: AN OVERLY RIGID, CLOSED SYSTEM ........................................................................... 26

3.1 CALLING THE SYSTEM INTO QUESTION.26

3.2 MORE FOCUSED CRITICISMS ........................................................................................................................... 28

3.3 CHANGES ARE NEEDED .................................................................................................................... 30

CHAPTER 4: REPOSITIONING THE BUSINESS MODEL ...................................................................... 31

4.1 ADAPTING IN CONTINUITY ....................................................................................................................... 31

4.2 DIRECT SALES TO CONSUMERS........................................................................................................ 32

4.3 RETAIL SALES WITH THIRD PARTIES......................................................................................................... 334.4 PRODUCTION QUOTAS....................................................................................................... 36

4.5 AN OFFER THAT ADAPTS TO THE MARKET ............................................................................................................. 41

4.6 THE MAPLE SYRUP RESERVE ............................................................................................. 43

4.7 PAYMENTS TO PRODUCERS .................................................................................................................. 46

4.8 UNION REPRESENTATION AND THE MARKETING MONOPOLY................................................................ 48

4.9 RELATIONS BETWEEN THE FEDERATION AND PRODUCERS.................................................................................. 51

4.10 THE RGIE DES MARCHS AGRICOLES ET ALIMENTAIRES DU QUBEC ........................................................................ 54

4.11 SYNERGY BETWEEN ALL STAKEHOLDERS ........................................................................................................... 56

CHAPTER 5: FROM THOUGHT TO ACTION ........................................................................................ 605.1 IMPLEMENTATION CHALLENGES .................................................................................................................. 60

5.2 PROVIDING SOME DIRECTION.......................................................................................................................... 62

IN CONCLUSION: TRUSTING IN OURSELVES....................................................................................... 64

LIST OF RECOMMENDATIONS.......................................................................................................... 66


4/71

3

Writing: Florent Gagn

Proofreading: Diane-MichlePotvin

Graphic design: Jean-SimonGagn


5/71

4

Introduction

Mandate

In a statement issued on May 15, 2015, Minister of Agriculture, Fisheries and Food Pierre Paradis

expressed concern about the future of Qubecs maple industry.

I notice, he said, that our position as a global leader in the maple industry is in decline. As

Minister of Agriculture, I cannot let the situation continue. I want to encourage Qubec

entrepreneurship, and it is my duty to find solutions. In this context, he announced his decision to

entrust the undersigned with the mandate to conduct a comprehensive study of the situation and

make recommendations.

Specifically, this study aims to identify the causes that have led to a loss of relative market share

and the obstacles to the development of Qubecs maple industry, and to determine possible

positions to adopt to ensure that Qubec remains the world leader in this industry.

Study methodology and processThe Ministre de lAgriculture, des Pcheries et de lAlimentation provided the author with extensive

reference materials in the course of this reports preparation. These documents contained

descriptions of the legislative and regulatory framework for Qubecs maple industry, statistics on

the various parameters of maple syrup production and marketing, and elements of interaction

between various industry partners in relation to problems or difficult situations that may have arisen.

They also included reports or more general reference materials on the agricultural sector.

The Federation of Quebec Maple Syrup Producers showed a similar openness and said that it

welcomed the conduct of the study. Throughout the process, it showed excellent collaboration by

making available a considerable amount of reference material that provided a comprehensive

insight into the policies, programs and methods of the Federation. In addition, on October 6, 2015,

the Federation submitted to the undersigned a memorandum titled ENTRETENIR ET


6/71

5

DVELOPPER LE LEADERSHIP ACRICOLE QUBCOIS in which it expressed its desire to

[Translation] further embed Qubecs maple syrup industry in the global food market of the 21st

century. It made commitments and recommendations to that end. Other industry partners also

provided valuable information for the study and made suggestions for the future.

Discussion and consultation meetings were held with representatives of the Ministre de

lAgriculture, des Pcheries et de lAlimentation (MAPAQ), the Ministre des Forts, de la Faune et

des Parcs, the Federation of Quebec Maple Syrup Producers (FPAQ), the Conseil de lindustrie de

lrable (CIE), the Association des rablires-Transformateurs des Produits de lrable (AETPE),

the Conseil des appellations rserves et des termes valorisants (CARTV), the Union paysanne,

ACER Centre, Farm Credit Canada as well as the Forest Lavoie Conseil consulting firm.

In addition to that consultation, around 80 people were met individually or in small groups so they

could add their contribution to the project. Some of these people were specialists, such as

Jean Pronovost, who chaired the Commission sur lavenir de lagriculture et de lagroalimentaire

qubcois and whose report was made public in 2008, and Normand Bolduc, who prepared a

report in 2004 about the maple industry at the request of the Table filire acricole. Other

stakeholders working in maple product processing and marketing or in equipment sales were also

consulted.

Finally, meetings were held, sometimes at the other partys request, with individual producers, who

mostly had major recriminations against the current marketing system and its management by the

Federation, or supported it but wanted improvements. Many emails and phone calls were also

received from people wishing to discreetly share their views.


7/71

6

The author of this report would like to thank all those individuals and organizations for their valuable

collaboration. Though the views expressed were very diverse, and even sometimes completely at

odds, they were all highly relevant to the theme of this study and reflected the will of everyone to

contribute to the continued development of a strong and competitive maple industry in Qubec.

Florent GagnDecember 11, 2015


8/71

7

Summary

Every year, Qubec proudly produces over 100 million pounds of maple syrup. It is the worlds

largest producer of this commodity in an overall market of around 160 million pounds. This marketis on the rise, and the growth prospects for the coming years are most interesting.

Although the good performance of Qubecs industry has enabled a

context of stable and relatively high prices for our producers, it also

stimulated the growth of production outside of Qubecin New

Brunswick and Ontario, and especially in US states located directly

south of the province and the Great Lakes. For the moment, Qubec

has a comfortable lead, but the tremendous potential of US producers deserves to be taken into

serious consideration when the leaders of Qubecs maple industry make decisions to ensure its

medium- and long-term prosperity.

These decisions need to take into account an important fact: Qubecs producers, as well as the

other stakeholders in the industry, operate under a very different model than producers in other

jurisdictions. While the latter are in a free market context, without restrictions other than those

dictated by supply and demand, Qubec producers have chosen, for better and for worse, to adopt a

Plan conjoint and other regulatory mechanisms under the Act respecting the marketing of

agricultural, food and fish products.

This business model has enabled Qubecs maple industry to grow and

consolidate its position on solid foundations, including by reducing the risk for

producers and encouraging investments. Productivity and product quality

underwent significant growth thanks to the efforts of dynamic Qubec

equipment manufacturers, who developed cutting-edge tools and devices. As

for marketing, large buyers also benefitted, notably through better supply chain security, which is a

sine qua non for developing their markets. In short, the industry is healthier today, but it is essential

that it continue evolving.

Despite Qubec'scomfortable lead, thepotential of US producersneeds to be taken intoserious consideration.

The industry ishealthier todaybut needs to

continue evolving.


9/71

8

So, do production quotas in a developing export market and the centralized marketing of maple

syrup by the Federation of Quebec Maple Syrup Producers still correspond, without qualification, to

the needs of todays context, where a growing part of production is in the hands of external

producers over which we have no control? Can maple syrup pricing on the basis of the balance of

power between the Federation and the Conseil de lindustrie de lrable get away with distancing

itself from the usual rules of a market economy? Is the Federations near-total control over the

various marketing channels necessary to maintain our gains? Is the system by which producers

behaviour is monitored and sanctioned by the Federation excessive? Or does it, by its very nature,

generate deviance? Can we achieve improvements in various components of the existing system

that would be beneficial to all without calling into question the entire model?

If no one wants things to regress to the way they used to be, it is clear

that the business model needs to be repositionedwe have to make it

more elastic, less all-encompassing, and give it the flexibility to cope

with the demands of a globalized industry. It is also essential that the model let Qubec producers of

all categories feel at ease and work within it with professionalism, talent and commitment, in

harmony rather than under a system of inspections and investigations that carry a heavy financial

and human cost.

The Federation of Quebec Maple Syrup Producers is not closed to change. In a memorandum

dated October 6, 2015, titled ENTRETENIR ET DVELOPPER LE LEADERSHIP ACRICOLE

QUBCOIS, it expressed commitments and recommendations that demonstrate that it is aware

of the need for adjustments. The courses of action that it presents are valid and deserve to be

supported. However, they do not call into question the most basic elements of the model, which still

appears highly necessary.

Changes should particularly focus on the following elements:

Conce rte d efforts s hould be m a de to de velopmarkets.

P roduct quality sh ould be cons ide red just as impo rta nt as increa sing volum e.

The Federation should ease the administrative burden on producers.

The Plan conjointshould exclusively concern bulk production.

P roduction quotas should be a bandoned.

The businessmodel should be

repositioned.


10/71

9

A developme nt pla n s hould be put forwa rd.

P rice s s hould be tte r re fle ct ma rke t conditions .

The conce pt of ma rke ting e xclus ivity s hould be revis e d to a llow for ag ree d e xceptions .

S urplus production ma nag em ent should be a pproach ed m oredynamically and in a way thatrespects buyers needs.

Concrete ste ps s hould be ta ken to re store ha rmon y with all produce rs.

The Rgie des marchs agricoles et alimentaires du Qubec should contribute to the desiredchanges by amending certain practices.

Cons ultation a nd coope ration be twee n s takeholde rs should be more e ncourag ed.

The la w should be a me nded to give the responsible Minister power of initiative and oversight.

Qubec has all the elements it needs to ensure the growth and development of its maple industry. Ifit is willing to do so, it can create the changes needed to leave today and yesterday behind and

move toward a most promising tomorrow.


11/71

10

Chapter 1A unique business model

1.1 Qubecs maple industry: an overview

Qubecs maple industry is periodically the subject of monographs published by the Ministre de

lAgriculture, des Pcheries et de lAlimentation. The latest monograph, which dates back to 2011,

provides fairly comprehensive quantitative data on the demand, supply, economic benefits,

marketing channels and competitiveness of the industry.

The Federation of Quebec Maple Syrup Producers also publishes a series of documents that

provide a rather detailed description of the characteristics of maple syrup production in Qubec and

of the industrys structure. Most of these documents, like those of the MAPAQ, are available online.

Repeating all this data in this report would be tedious, especially since it is public and easily

accessible. However, for brevity and to facilitate the understanding of readers less familiar with the

field, let us take a brief look at the broad strokes of this industry.

For years, over 80% of worldwide maple products and maple syrup production originated in

Qubec. According to the latest data, Qubec now accounts for 70% of global production.

However, over a 10-year period, this production increased from around 108 million pounds to over

160 million pounds in 2014.

The relative decline of Qubecs share, while worrying, conceals an

actual increase of approximately 30% of its production, which grew from

85 million pounds to 114 million pounds over the same period. It was

mainly US production which grew faster than Qubecs (more on this

later), while production in Ontario and New Brunswick experienced

more moderate growth.

For years, Qubec

accounted for over 80%of global production.


12/71

11

Global demand has been growing steadily for 10 years, especially in Japan and Europe (particularly

Germany). The largest consumer, however, remains the United States by far, with a volume of

around 72 million poundsnearly half of global consumption, which is currently estimated at

156 million pounds.

From an economic point of view, the maple industry remains sizeable. Qubec has over

13,500 maple syrup producers working some 7,200 sugar bushes. The number of sugar bushes

has declined since 2000, but has been increasing slightly in recent years. Additionally, there is a

marked trend, in all producing regions, towards larger businesses.

Qubec production in 2014 represented a farm gate value of $318 million. It was also observed that

revenue growth in the maple industry outpaced that of the entire agricultural sector in recent years,

thanks to a combination of price maintenance and increased sales volume. The financial situation

of maple producers has improved and is now considered very healthy overall. The value of

businesses keeps growing, and the number of direct and indirect jobs is estimated at 5,000,

including around 700 jobs in the processing sector.

1.2 A highly regulated sector

In addition to remaining the worlds main producer even though its

relative share is slipping, Qubec differs from other jurisdictions in the

way it structures its maple industry. While maple syrup producers in

the United States and other provinces produce and sell their syrup

freely according to market rules alone, Qubec producers are required to work within the specific

framework whose foundations lay in the provisions of the Act respecting the marketing of

agricultural, food and fish products (R.S.Q., c. M-35.1).

This law (ARMAFFP), which was adopted in 1956, was a victory for Qubec farmers at the time. It

was the culmination of a long struggle to restore a balance between agricultural producers and the

buyers of their products. The law was substantially overhauled in 1990 and has since been the

subject of various amendments, although the principles and implementation mechanisms have

remained basically the same.

Qubec stands out forthe structuring of itsmaple industry.


13/71

12

Essentially, the law establishes a set of rules that allow producers to take collective and organized

control over the production and marketing of their products. It offers producers the possibility of

implementing a joint plan that gives them the power to collectively negotiate the conditions under

which their product will be marketed and those in which it will be produced.

Additionally, the law gives the board responsible for administrating the joint plan the power to

formulate and adopt by-laws for its implementation and operation. The law also specifies the

supervisory and regulatory powers of the Rgie des marchs agricoles et alimentaires du Qubec

(RMAAQ), whose role is to promote efficient and orderly marketing, foster the development of

harmonious relations between parties and arbitrate disputes.

The ultimate goal of these combined legal provisions is to establish an equitable economic

relationship between producers and buyers and ensure a fair price is reached.

1.3 The organization of the maple industry

Over the last 25 years, maple syrup producers gradually availed themselves of the provisions of the

ARMAFFP. The first provincial joint plan was actually adopted in 1990; it applied to maple water

and maple syrup produced in Qubec and sold in barrels or in bulk. Originally, the Plan conjointdid

not cover syrup produced at a producers sugar bush and sold directly to consumers, and syrup in

small containers sold to a third party. It was amended in 2001 to regulate the sale of syrup to a third

party. However, in accordance with the ARMAFFP, direct sales to consumers remain excluded.

Around the same time, the first marketing efforts began with the establishment of the

Regroupement pour la commercialisation des produits de lrable du Qubec, consisting ofrepresentatives of buyers and producers. The Regroupement supported inventories, the first step

towards the creation of a reserve. The first agreement on the marketing of syrup sold in barrels or in

bulk was signed in 1998 with buyers; this agreement laid out the conditions to be recognized as an

authorized buyer, set the minimum price for each grade of syrup and defined payment terms for

buyers.


14/71

13

Furthermore, in 2000, the Federation created a syrup bank, called the strategic maple syrup

reserve. This tool is used, among other things, to mitigate production variations due to weather

conditions. For buyers, it guarantees a consistent supply. The initial objective was to hold in reserve

a quantity equivalent to half of the annual demand.

The Regroupement pour la commercialisation des produits de lrable du Qubec experienced

difficulties that led it to be dissolved in 2002 and replaced by the current sales agency. The

Rglement sur lagence de vente des producteurs acricoles,approved by the Rgie des marchs,

assigned the marketing of bulk maple syrup to the Federation, which acts as an exclusive sales

agency. The regulation excludes the sale of syrup containers under 5 L. It also provides that

producers be paid only for the syrup sold, according to payment schedules and terms it establishes,

and that fees for marketing and storage can be charged to all producers.

In 2003, an additional step was taken with the adoption of the

Rglement sur le contingentement de la production et de la mise en

march du produit vis par le Plan conjoint des producteurs

acricoles du Qubec, which introduced the concept of supply

management. From that moment, every producer under the joint plan

had to obtain a production quota from the Federation based on their production history. For 2004,

the quota was set to 75% of historical production. Thereafter, adjustments were made to take into

account the evolution of demand and specific situations such as the start-up of new maple

businesses.

With the Plan conjoint, the marketing agreement, the sales agency, the strategic reserve and

production quotas, Qubec strongly differentiated itself from other maple syrup-producing

jurisdictions in the last quarter century. For better or for worse, Qubec producers are working in a

legal and regulatory environment that has no equivalent anywhere else.

1.4 Time to take stock

For a quarter of a century,Qubec has stronglystood out from other

maple syrup-producingjurisdictions.


15/71

14

Maple syrup has traditionally been associated with Qubecs

food and culinary culture and, more generally, has served as

an iconic emblem of the province. The maple industry,

through its size and its place in Qubec and in the world, has become a flagship of Qubec

agriculture. However, the greatest danger it could face is falling into complacency and refusing to

see that real threats are looming on the horizon and have begun taking shape, including the

observed acceleration of US production. Chapter 2 will give us the opportunity to analyze this issue.

Furthermore, relationships between various stakeholders in the maple industry have been under

constant stress for several years, and some fundamental differences of opinion have surfaced.

Many are those who demand targeted adjustments or even radical changes to the imposing legal

and regulatory apparatus that characterizes our maple syrup production and marketing. Qubecs

experience, expertise and development potential must serve as cornerstones to define and

implement adjustments that have become essential.

The greatest danger theindustry could face is fallinginto complacency.


16/71

15

Millionsoftaps

Chapter 2A globalizing industry in an evolving market

2.1 A thriving industry

First, we should mention that Qubecs maple industry is not in a weak or declining state, far from

it. Like any sector of the economy, our maple industry has its share of difficulties and could

probably use some improvements, as we will see later, but the first thing that must be noted and

even emphasized is the strength and vitality of this area of the agricultural world.

Over the last 20 years, the maple industry has experienced major progress which can be easily

summed up with a few figures:

In 1985, Qubec sugar bushes had 14 million taps; in 2000, there were 33 million, and thereare about 43 million today. The total potential is estimated at 100 million.

Cumulative Number of Taps in Qubec, Out of an Estimated Potential

of 100 Million

100

80

60

4340

33

20 14

0

1985 2000 2015

Year


17/71

16

Tonsofmaplesyrup

P roduction qu ota leve ls g rew from 65million pounds, when quotas were implemented in2004, to 111 million pounds in 2014.

Global production h a s grown rap idly over the las t 10 yea rs, increasing from 108 million pounds in2004 to around 160 million pounds in 2014.

During the s am e p e riod, Qu be c increa se d its production from 86million pounds to113 million pounds, but its relative share of global production slipped from 80% to 70%.

180

160

Qubec and Global Production

160.6

140

120

100

80

108.5

22.1

20%

145.9

36.5

25%

46.9

30%

Production

outside Qubec

Production in

Qubec

60

40 86.4

109.4 113.7

20

0

2004 2009 2014

Year

Source: Federation of Quebec Maple Syrup Producers, Dossier conomique et Statistiques agricoles, 2014

Ca nadian e xports increas ed from 72million pounds in 2010 to 85 million pounds in 2014an

18% increase.

On a verage , in the las t five yea rs, Qu be c e xported 70% of its a nnua l production.


18/71

17

Weight

edprice($/lb)

The price paid to producers for maple syrup increased from $1.54/lb in 2001 to $2.80/lb in2014; the price has also greatly stabilized since 2009, as opposed to the erratic variationobserved in previous years.

3

2.8

2.6

2.4

Weighted Price. All Grades Included. in Qubec20002014. Excluding Flavour Defects

2.72 2.742.78 2.82

2.90 2.87

2.14 2.18 2.152.22 2.22

2.2

2

1.8

1.6

1.4

1.2

1

1.54

2.02 2.03 2.02

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year

Source: Federation of Quebec Maple Syrup Producers, Dossier conomique et Statistiques agricoles,2014.

The number of maple businesses grew only slightly, but we see more and more larger-sizedbusinesses as well as the development and use of advanced technologies.

Over the last five years, the Federations sales increased by about 10% per year, andpayments to producers increased by 8.5% per year.

The financial situation of maple producers is generally very good; according to Statistics

Canada, the net income after amortization of maple businesses (17%) is significantly higherthan that of all agricultural operations (7.3%).

In the past, the Qubec maple industry has gone through difficult years, and producers alternately

suffered from the vagaries of nature, a lack of organization or the omnipotence of buyers who

dictated the rules.


19/7118

The industry is generally much healthier now, largely thanks to the

collective efforts of producers who took action using the means offered

by the ARMAFFP. Buyers also played an active role in this effort to

clean up and consolidate the industry, and the relationship between

producers and buyers has greatly improved in recent years.

While tensions still persist between the industrys various stakeholders, the great battles of the

past are essentially behind us, and progress has been significant. Although its actions have

been (sometimes wrongly, sometimes rightly) heavily criticized, the Federation of Quebec Maple

Syrup Producers must be recognized for its major contribution to this organizing effort. Today,

the Federation is able to guarantee volumes and ensure a constant supply thanks to the

strategic maple syrup reserve, which is probably its most valuable achievement.

Despite the criticism some parties have levelled at it, the Federation transformed Qubec maple

syrup into a product thats available to buyers and profitable for producers. Even among those

who strongly criticize the organization, its policies and its practices, most agree that the situation

was worse in the past and that destroying everything that has been built would be indefensible.

The most widespread idea is that the current system has produced great things, but must now

continue to evolve and adjust to the changes necessitated by a world that itself is changing

rapidly.

2.2 A more competitive global market

Qubec is still, by far, the world leader in maple syrup production. However, it would be wrong

to believe that this is set in stone and that we can ignore whats going on elsewhere with

impunity. This is especially relevant considering that over 70% of our production is destined for

the export market. Developments in the US maple industry deserve special attention, and so do

those in New Brunswick and Ontario, though to a lesser degree.

Recognizing this, the Federation and the Conseil de lindustrie de lrable (CIE) joined forces in

2014 to commission a study: the tude sur le contexte de dveloppement de lacriculture en

The industry isgenerally muchhealthier now.


20/7119

Amrique du Nord. Some of the elements highlighted by this study, which was conducted by the

Forest Lavoie Conseil consulting firm, were the scale of US production growth in recent years

and the tremendous potential of US producers. The study, which is available online, also

showed that:

The number of taps in US states increased by 45% between 2007 and 2015, going from8.2 million to 11.9 million.

The yie ld pe r ta p is no w significa ntly highe r tha n tha t of Qu be c de s pite the two being s imila r

10 years ago.

The two pre viousfactors enabled US production to grow by 45% between 2007 and 2012.

The high and stable price of maple syrup and the consistency of market conditionsestablished in Qubec are the main factors driving the development of US maple syrupproduction.

Larger maple businesses are more numerous and are responsible for a greater share ofproduction. Technology also plays an important role in productivity.

US producers rec eive a bout $0.50 more per pound than Qubec producers, in part because

they do not contribute to the costs of Qubecs marketing system while still reaping its

benefits. This additional income is then used to invest in advanced technology and develop

new taps in a system free of production quotas.

According to some studies, US territory holds theoretical potential for 2 billion taps. It is

estimated that the most easily accessible and usable maple trees, in the short term, number

around 200 millionwhich is still impressive, especially considering that only 6% of this

volume is currently being used. For comparison purposes, Qubec is said to have tapping

potential for 100 million maple trees, 43 million of which are already in use. As for Ontario, it

has a tapping potential of about 108 million, of which only a small percentage is in use.

The strength of the m a ple indus try growthin the US has so far caused Qubec to lose around

1.2% of its market share on average over the last 10 years in an otherwise growing globalmarket. Despite its market share decreasing from 78% to 69%, Qubec still sells 12 millionmore pounds annually than it did 10 years ago.

Global consumption actually increased by 35% in the last five years, going from 114millionpounds to 156 million pounds, which allowed Qubec to increase its sales despite growingUS competition.


21/7120

However, Qube cs s a le s on the US m arket have not increa s e d s ince 2007 d es pite this

market still being Qubecs main export market and the main consumer.

The Farm Bill adopted by the US government in February 2014 includes a new programworth about $20 million per year to support the maple industry.

Based on the econometric models used, it is estimated that US production, which was

36 million pounds in 2013, could increase to 44 million pounds in 2018.

For their part, Americans are monitoring the situation closely. An article

published in the November 7, 2015 edition of The Economistdescribed

the Federation of Quebec Maple Syrup Producers as the OPEC of maple

syrup and questioned its strategy. Just like OPEC, it reads, the Federation controls the level of

production to keep prices high and stable. After discussing the potential strength of the US by

reminding readers that the state of New York alone has more maple trees than all of Qubec, the

author writes that US producers definitely have the ability to surpass Canadian production.

Continuing his parallel with OPEC, he then explains that the Federations strategy of limiting

production and maintaining a high price may have the dual effect of stimulating US production and

encouraging consumers to substitute maple syrup for cheaper products. In such a context, the

Federation could find itself forced to choose between tightening quotas or letting the price of maple

syrup fall.

One can certainly disagree with or qualify the authors views, but it is clear that a fundamental

question is being posed, and that it would be unwise, to say the least, not to take it as seriously as it

deserves. After all, market forces will inevitably be shaping the evolution of an important sector of

Qubecs economy.

2.3 Threat or opportunity?

Though Qubecs maple industry remains strong, it is obvious that the global context has changed

irrevocably and that it would be rashirresponsible, evento close our eyes to developments in

other maple syrup-producing jurisdictions in North America and mainly in neighbouring US states.

During consultations with associations and people working in Qubecs maple industry, the

development of US production was one of the most commonly discussed topics.

The OPEC of maplesyrup.


22/7121

In general, stakeholders took the issue very seriously; most of them felt that published data grossly

underestimated the growing and accelerating US phenomenon. This was particularly true for

equipment suppliers, who had the advantage of working directly in the field with US producers. The

Forest Lavoie study also reported marked underestimations when comparing data from various US

sources and the situation actually observed in the field.

In fact, some believed that the US could experience annual growth rates of 10%, or even more, in

the coming years. At this rate, a production of 37 million pounds in 2015 would reach almost

50 million pounds as soon as 2018 and 60 million pounds in 2020. While remaining hypothetical,

these projections should be taken seriously.

Some viewed the development of US production as a direct threat to

Qubecs interests, foreseeing that Americans will be self-sufficient in

less than 10 years and that Qubec will thus be deprived of its main

foreign market, which currently absorbs 66% of our maple syrup

exports.

Without disputing these figures, others were more optimistic and viewed the development of USproduction as a sign that the global market for maple products is strong and will remain so in the

coming years. For them, opportunities will come back to those who will be able to develop and

seize them.

Still, all the stakeholders consulted insisted that the situation needed to be brought under control

and that Qubec had to act to remain a major and competitive player in the maple syrup industry.

Though few thought that Qubec could take back the market share that would return things to theway they were 10 years ago, many believed that Qubec can and should continue developing its

maple industry, which still has the potential of one and a half times its current production.

In other words, Qubecs 10% drop in global production share in recent years is not perceived as a

catastrophe in itself, nor as a goal to recapture, but rather as a serious signal that cannot be

Opportunities willcome back to thosewho will be able todevelop and seize

them.


23/7122

ignored. The worst approach would be to let events take their course and leave everything up to the

market and the seasons. If Qubec wants to ensure the sustainability of an industry that has been

developing well for 20 years, strong measures must be taken without delay.


24/7123

2.4 Promotion and market development

The first of these measures is most certainly to ensure progressive market development. If thesustainability of Qubecs maple industry is to be reconciled with an accelerated development of

US production, it is essential that global demand for maple products grow. This is a course of action

that is as sound as it is necessary, and it demonstrates the intent of all parties not to remain

passive about the situation. Initiatives in this direction are already underway.

For instance, the Federations organizational structure includes a

Promotion, Innovation and Market Development Service whose

mandate is to increase the reputation, visibility, value and sales of

Qubec and Canadian maple products nationally and internationally. In

collaboration with all its partners, the Federation was also closely involved in the development and

implementation of a long-term international strategy known as New Generation of Maple 2020,

which is periodically updated and serves as the basis for developing five-year action plans.

More recently, the tude sur le contexte de dveloppement de lacriculture en Amrique du Nord,

commissioned from Forest Lavoie Conseil by the Federation and the Conseil de lindustrie delrable (CIE), included an appendix with an action plan submitted to the attention of partners. After

warning of the dangers of maintaining the status quo, the authors pointed out: [Translation] a

strategy wherein markets would be developed in a forceful and concerted manner seems most

appropriate to limit the impact of the growth in US production on Qubecs industry. The action

plan identified four targets and proposed specific courses of actions to achieve each of them.

Authorized buyers, represented by the CIE, have also made significant efforts in recent years togrow sales, especially exports, which are on the rise right now. In 2014, Canada (mainly Qubec)

was exporting $310 million in maple products to 88 countries, including 63% to the United States,

9.6% to Japan, 8.4% to Germany and 4% to the United Kingdom.

While the Federation and buyers had somewhat tense relations in the past, they now seem to have

moved on to collaborating and trying to find possible solutions to improve the maple industrys

Only growth indemand can ensure

the future.


25/7124

competitiveness together. They are aware of the challenges, including the issues brought up by the

accelerated development of US production, and so they jointly took the initiative to commission the

study conducted by Forest Lavoie Conseil. They were invited to work together to implement the

action plan appended to the report.

If it is to remain competitive and ensure its development, the Qubec maple industry has no choice

but to continue and ramp up its efforts to develop markets and take its rightful place within them.

Though all signs are positive regarding the potential for growth in global consumption of maple

products, it is clear that the benefits of such a development will come to those who will have worked

to bring it about.

Producers and buyers, respectively represented by the Federation and the CIE, have a leading role

that they need to play with discipline and determination. Governments also have their contribution

to make by maintaining their support for the generic promotion of maple products in international

markets.

In this context:

It is recommended that the Federation of Quebec Maple Syrup Producers, the Conseil de

lindustrie de lrable and other partners in the maple industry work together, with

support from the MAPAQ, to ensure the healthy development of the international market

for Qubecs maple syrup.

Furthermore, these market development efforts should not only target higher volumes but also

focus on the development of a Qubec brand image built on the authenticity, quality and

traceability of our products. Interesting initiatives have already been launched, but we are still far

from done on those fronts.

In 2014, the Federation and the CIE joined forces once more to commission a study on the subject.

Both organizations were alarmed by the growing number of signs that maple products could be

subject to tampering and alteration, as this unfortunately happened elsewhere for other industries

such as olive oil and wine. The absence of guarantee on the quality of Qubecs maple syrup may


26/7125

turn out to strongly harm the image of the product, especially on the international market.

The report by the consulting firm Zins Beauchesne and Associates, titled De lrable la table :

tude de faisabilit pour garantir lauthenticit du sirop drable, was not able to arrive at a

consensus approach with industry stakeholders to develop a comprehensive, integrated system to

ensure the authenticity, traceability, quality and safety of Qubecs maple syrup. However,

interesting and promising avenues were identified. The reports main recommendation included

proposals for international monitoring and random quality checks to detect counterfeiting and poor

quality. Additional recommendations were also made to ensure Qubecs product is of better

quality.

During consultation meetings with industry stakeholders as part of

this study, the issues of quality, authenticity and traceability of

Qubecs maple products were raised as major factors for the

promotion of Qubec products on the international market. In a

context of greater competition with producers in other jurisdictions,

it would be in Qubecs interest to pitch its identity and connect it ever more closely to the concepts

of quality, safety and authenticity, which are highly prized by todays increasingly demanding and

knowledgeable consumers. The demand for organic syrup is also high, and producers should be

encouraged to transition to this type of production.

In this regard, Qubec already has valuable tools: inspections by ACER Centre, producer

identification and traceability, mandatory certifications for processors and sellers, theAct respecting

reserved designations and added-value claims and its traditional image to promote the

development of distinctive and high-quality products in Qubec.

For its part, the Federation has stated its commitment to maintaining producers investments in

research and development of new products and to developing, in concert with the industry,

marketing initiatives to raise consumers level of knowledge and confidence. In its memorandum

titled ENTRETENIR ET DVELOPPER LE LEADERSHIP ACRICOLE QUBCOIS, dated

October 6, 2015, the Federation outlined several interesting measures to foster market

development and better meet consumer needs. It is desirable for the Federation to move forward

Bank on the developmentof a "Qubec" brand

image focused on theauthenticity, quality and

traceability of our product.


27/7126

with these measures, which directly concern product quality and authenticity.

At the International Maple Symposiumorganized by the Federation in November 2015, the themes

of quality and authenticity were heavily discussed as an essential condition for success in market

development.

In this context:

It is recommended that Qubecs promotional efforts focus not only on the availability

and security of the provinces maple syrup supply, but also on the distinctiveness of

Qubecs product, concretely supported by a strong process that guarantees quality

and authenticity.


28/7127

Chapter 3An overly rigid, closed system

3.1 Calling the system into question

Though the maple industry is still thriving overall, strong measures are needed, as we mentioned in

the previous chapter, to ensure the maintenance and development of Qubec production when

faced with the rise of US and, to a lesser extent, Ontario and New Brunswick production. In this

context, developing markets is an essential process that must absolutely be undertaken as a

priority. Yet, even though this measure is imperative, it would be nave to think that it is, by itself,the solution to every issue faced by Qubecs maple industry.

No one can dispute the fact that the Federation took steps that made the industry healthier, but its

relations with producers have had major shortcomings. These difficulties are not new and continue

to this day, representing a serious obstacle to the healthy development of the industry. They also

did not go unnoticed by local and foreign media.

In an article titled Maple Syrup Rebellion, published in theApril 25, 2015 edition of the Financial Post, journalist Peter

Kuitenbrouwer described in great detail the tense relations between

the Federation and several of its members. Other media outlets, in turn, highlighted the rivalry

between producers and the Federation, which was exacerbated by dramatic seizures of syrup

barrels from producers and the surveillance of sugar bushes by private security guards hired by the

Federation, the costs of which were then billed to the producers concerned.

During consultations conducted as part of this study, this discontent was felt very strongly. While

the Federation considers that the situation is confined to a few producers it describes as

recalcitrant and says that the vast majority of producers are satisfied, it quickly became clear that

the unrest goes far beyond what the Federation is willing to admit. Either there is a disturbing

information gap between the Federations establishment and a growing number of producers, or,

more likely, the Federation has deliberately made the strategic choice of minimizing the problem.

Relations with producershave had majorshortcomings.


29/7128

This unfortunate situation is far from new; it has characterized the last 30 years of Qubecs

production and marketing coordination.

During this study, we met with producers who called into question the entire system built on theAct

respecting the marketing of agricultural, food and fish products. In their view, the existence of a joint

plan, a sales agency, a union representation monopoly, the Federations regulations, supervision

performed by the Rgie des marchs and the other characteristics of the Qubec system is a

breach of their rights and freedoms. They are calling for the full right to produce and market the

fruits of their labour as they want. The Federation, its regulations and its application of those

regulations (which they deem authoritarian) are seen as components of a legal cartel backed by the

State.

One stakeholder summed up his thoughts as follows: [Translation] Currently, without a quota,

producers can only sell in small containers (while being harassed by the Federation, which

continually requires evidence and launches investigations with the Rgie) or sell or export their

syrup through illicit channels. The option of delivering it to the Federation results in excessive

payment delays or, for production without quotas, gives rise to severe penalties.

Proponents of this view are quick to compare the situation of Qubec producers to that ofproducers in other provinces and in US states, who work in total

freedom. In a market characterized by the predominance of exports and

by growing competition from other jurisdictions, they view Qubecs

current system as a heavy, inflexible handicap to the provinces

performance as well as a source of injustice for affected producers. They

feel that the current system has lost its place, its purpose and its legitimacy.

This perspective reflects an ideology which we feel is entirely defensible, with logical and

well-founded arguments. In the long term, it would certainly be desirable that Qubecs economic

agents in the agricultural industry be able to work in conditions offering the same freedoms and

opportunities as those their competitors enjoy.

It is often morerealistic to work toimprove existing

things.


30/7129

However, it is often more realistic and certainly easier to work to improve existing things instead of

dreaming of a radical change which, in practice, is unlikely to become a reality. The Qubec model

has had definite successes and produced tangible benefits for the maple industry and for

producers, but it undeniably needs improvements and even major changes if optimal conditions for

the evolution and development of a strong export industry in an increasingly globalized and

competitive world are to be established. It seems more productive to work on the desired changes

instead of tearing everything down and starting from scratch.

3.2 More focused criticisms

In fact, many people have serious complaints against the Federation and Qubecs marketing

system without necessarily calling their existence and all their workings into question. Still, they

definitely make striking, direct and often severe statements on the current situation.

Generally, they deplore the fact that the Federation is too powerful and that, according to them, it

has built over the years a very tight system that gives it the right of life and death over producers

and other industry stakeholders. The ARMAFFP, by giving the Federation the ability to enact

regulations that legally compel industry players, is in their eyes a disproportionately strong tool

which the Federation has abused.

They consider that the State has abdicated its responsibility to legislate in

this field and fell back too easily on an external bureaucracy with a

distinctly "all-or-nothing approach. Obviously, the detractors continue, it

aimed for all, and got its wish thanks to a triple threat of a monopoly,

union democracy they call questionable and supervision by the Rgie des marchs agricoles often

judged complacent. More specifically, they attack the Federations regulations, especially theRglement sur le contingentement de la production et de la mise en march du produit vis par le

Plan conjoint des producteurs acricoles du Qubec.Their complaints include that the allocation of

quotas to producers by the Federation is done in a restrictive, obscure and even arbitrary way.

Many say that the system is too rigid and that as a result, a lot of producers are put in a situation

A system thatencouragesdeviance.


31/7130

where they have no choice but to deviate from it to sell their production. Its a system that

encourages deviancewhich the Federation never fails to punish heavily afterwards.

In this regard, they denounce the activism and zeal of the Federation, which does not hesitate to

prosecute its members as well as harass them with repeated administrative and legal procedures,

administer unfair penalties to them, cut their eligibility for other agricultural support programs and

contact financial institutions to have their credit suspended. Some freely go so far as to speak of a

regime built on terror and intimidation, designed to keep producers well behaved and muzzled so

that they do not express their dissatisfaction too openly. These threats can be made following a

simple disagreement on the interpretation of the regulatory text.

One producer who has been waiting for a quota for several years expressed his exasperation in this

way: [Translation] The Federation should help me or leave me alone. Those few words reflected a

sense of deep frustration and abandonment felt by many towards their union, which they viewed

more like a distant and authoritarian bureaucracy that defends a rigid system and its own corporate

interests rather than taking its members side.

Other producers provided extensive documentation illustrating the difficult personal experience

theyve had in recent years when they were in conflict with the Federation. In some cases, they

were led into a financial dead end, and some even had their personal and psychological health

affected.

Among all these testimonies, there are probably exaggerations, frustrations being vented or even

scores being settled; we must be prudent in our assessment. However, the testimonies are too

numerous and diverse, and the documentary evidence too fleshed out, to overlook the conclusion

that the Federations policies and their application have created profound unrest.

3.3 Changes are needed


32/7131

Given that Qubec producers will face increased external

competition in the coming years, it wont be enough for them to

focus solely on growing internal and external markets if the maple

industry is to develop in a healthy and harmonious way. It will be

essential that they, with help from the State, make the appropriate corrections to the Qubec

system to make it more efficient and able to meet the expectations we can legitimately have for it.

Though the system has been successful in some areas, it needs to be simplified, relaxed and

oxygenated.

If we work courageously and judiciously at solving our problems, we can maintain a prosperous

maple industry that will be a source of satisfaction and pride for all those who work in it and a

motivating environment for those who will eventually take up the torch. To this end, the next chapter

lays out courses of action that we encourage all those who care about the good functioning and the

necessary development of Qubecs maple industry to adopt.

The system needs to besimplified, relaxed and

oxygenated.


33/71

Chapter 4Repositioning the business model

4.1 Adapting in continuity

As weve seen, Qubec stands out from other maple syrup-producing jurisdictions due to the

existence of a collective production and marketing system that has no equivalent elsewhere. In other

provinces and US states, maple producers freely produce and sell their products under free-market

rules. While it must be recognized that our collective scheme has allowed the establishment of a fair

price for producers and of a constant and sufficient supply for the market, we must also realize that

this system is very rigid and badly needs to be modernized and adapted.

While preserving the gains it has enabled, the system needs to be simplified, liberalized, lightened

and refreshed in several aspects. For reasons of its own, the Federation has chosen over the years

to take a very comprehensive approach in its designs and implementation, which has led to it having

a tight control over almost everything related to the production and marketing of maple syrup. In fact,

nothing escapes it, except for small containers sold directly to consumers by producersand even in

that case, it tries to insert itself into the process by demanding accountability.

Even though such an autocratic ideology may have seemed

appropriate in the first years of the system, it now appears to be

increasingly called into question, not only based on the principles

arising from the rights and freedoms we enjoy as citizens, but also due to its peculiarity when

compared to what is happening elsewhere in developed countries. This last point is especially salient

in a strongly export-oriented industry. For these reasons, we must not hesitate to make the necessarychanges or even to sacrifice some sacred cows.

An autocratic ideologythat is being questioned.

32


34/71

4.2 Direct sales to consumers

Currently, there are three marketing channels for maple syrup in Qubec:

Direct sales to consumers by the producer of containers of less than 5 L (approximately 10% ofproduction)

Sales to a third party (a grocery store, for example) by the producer or a producer-processor ofcontainers of less than 5 L (approximately 5% of production)

Bulk sales of containers of 5 L or more, usually in barrels (approximately 85% of production)

The Plan conjoint des producteurs acricoles du Qubecdoes not apply to the first channel (maple

syrup produced in a producers sugar bush and sold directly to consumers by this producer).

Accordingly, the Rglement sur lagence de vente des producteurs acricoles and the Rglement

sur le contingentement do not apply. This sales channel therefore allows a producer who so wishes

to produce the quantity they want and sell it at the price they set.

In principle, this freedom should exempt the Federation from needing to control or request

information from producers engaged in this type of production. The Federations president actually

recently stated that producers can make unlimited use of this sales channel [Translation] without

any sort of control or scrutiny from the Federation(Info-Sirop newsletter, June 2015).

However, during the consultations, several participants complained that they were being held

accountable by the Federation for this type of sales even though it is not covered by the Plan

conjoint. We have indeed seen that the Federation asks producers to declare annually, when

renewing their registration forms, the number of their direct sales of small containers to consumers.

In addition, many producers in this category said they had been subjected to repeated requests from

the Federation that went as far as demanding lists of all the names of those who purchased their

product, with purchase amounts and quantities. These requests are accompanied by threats to

inform, in case of non-compliance, La Financire agricole du Qubec that there is a dispute, whichwould cause producers to lose access to the programs it administers. In other cases, the

Federations requests were explained by a need to control the quality of the product, even though

this product is not covered by the Plan conjointnor by the Rglement des producteurs acricoles sur

les normes de qualit et le classement.

33


35/71

The Federation would greatly contribute to improving relations with

producers of this type if it freed them from all forms of control,

administrative hassles and scrutiny. Given that the product concerned is

not covered by the Plan conjoint,it appears difficult to justify burdening

producers with these restrictions and requirements we would be hard-pressed to justify, except

perhaps an exaggerated desire for supervision and control on the Federations part.

Consequently:

It is recommended that the Federation of Quebec Maple Syrup Producers amend its

practices so that the production and sale of maple syrup not covered by the Plan conjoin t

may be conducted freely and without administrative hassles for producers.

4.3 Retail sales with third parties

It is estimated that there are just over 500 maple producers who package their syrup in containers of

less than 5 L or process it into derivative products (maple butter, maple taffy, candy, maple sugar,

etc.) and who market their products through third parties, including wholesalers, grocery stores and

convenience stores. Most often, these are small artisanal producers who are meeting local demand

for a product in the region, or larger companies working in wider markets.

The Plan conjointhas applied to this type of production since January 2001, unlike direct sales of

small containers to consumers. In addition, these producers are also covered by the Rglement sur

le contingentement,but their situation is completely different from that of bulk producers.

Producers in this category develop their own markets and thus contribute to the prosperity of

Qubecs maple industry. Their work targets market demand not for a standardized product, but for a

more differentiated one which is often closely associated with the producer through particular

packaging. This business model is based on integration between production, processing and

marketing instead of focusing solely on volume like bulk producers.

Through vertical integration, this sector becomes more efficient at adapting quickly to consumer

Requirements wewould be hard-pressed to justify.

34


36/71

demand and providing the expected innovations. The emphasis is firmly on business opportunities in

a market that favours a differentiated product often associated with its producer.

But in reality, these producers are subject to supervision that is hardly compatible with their situation,

since the Plan conjointis in no way intended to stimulate entrepreneurship,

variety in business models, the production of differentiated products or the

satisfaction of market demand for original products. The Plan conjointwas

obviously designed essentially for bulk production and marketing, and is

unsuitable for this sector.

Also, imposing production quotas to producers who sell their product at retail through third parties

seems completely at odds with the dynamics of those businesses which, through their efforts,creativity and initiatives, directly contribute to market development. Indeed, it would seem perfectly

normal and defensible for producers who process and market their own product in small containers

to be able to produce the quantities they need, especially when it allows them to bolster the

development and vitality of the maple industry.

Moreover, the level of control exerted by the Federation pursuant to the Plan conjointfor this type of

producer appears excessive and difficult to justify. For example, section 14 of the Rglement sur le

contingentement de la productionprovides that producers who make third-party retail sales must

submit copies of their sales invoices to the Federation. Nevertheless, the annual producer

registration form not only asks for the total quantity of product sold to third parties, but also includes

an appendix titled Register of third-party retail sales, in which the producer is asked to provide the

name of each customer and specify for each one the point of sale, whether it is a new customer, the

nature of the product sold, the quantities and amount of each sale and the number of sales per year

to this customer.

On its website, the Association des rablires-Transformateurs des Produits de lrable issued a

news release in which it invites its members to be cautious regarding the Federations demands. It

expresses the following reservation: [Translation] Customer lists are trade secretshighly

confidential information that you have the right to protect.

The Plan conjointwas essentially

designed for bulkproduction.

35


37/71

In case of non-compliance, the Federation may demand that producers provide even more accurate

and complete information such as production volumes and schedules, detailed accounts of all sales

with supporting documents, invoices for purchases of small containers, electricity or oil bills, the

number of taps in operation, the sugar bushs cadastral designation, any lease or managementpermit issued for public land, bank statements and a copy of their financial reports for several years.

In addition, the form letter the Federation uses for this purpose sets out a possible threat to transfer

the case, when applicable, to the Rgie des marchs agricoles et alimentaires du Qubec (RMAAQ)

for an investigation or to ask La Financire agricole du Qubec to suspend the producers eligibility

for its programs and services. The Federation bases its authority on a provision of the Plan conjoint

which states that it may obtain from producers all information deemed useful to the application of the

Plan conjointand of regulations.

It is difficult to understand what purpose the Federation may derive from all these heavy and detailed

requirements besides establishing its power and wish for absolute control, in addition to imposing a

very substantial administrative burden on targeted producers.

Since the sale of maple products to third parties takes place in a context that is very different from

that of bulk producers, one can seriously question the necessity and relevance of applying to the

former a joint plan clearly designed and controlled by the latter.

In a 2004 report, the president of Qubecs Table filire acricole, Normand Bolduc, had already

recommended that sales of products to third parties be exempted from the Rglement sur le

contingentement to allow producers to continue developing their markets. The Federation

vehemently and authoritatively rejected this recommendationjust like the rest of Mr. Bolducs

report, in factwith a response delivered in a magisterial and belligerent tone.

Nevertheless, this recommendation still appears valid 11 years later. In fact, we believe it does not

go far enough and that there is now a need to remove these constraints for maple producers who

engage in third-party retail sales, in order to simplify and streamline the regulation of maple

production.

36


38/71

Consequently:

It is recommended to exclude from the Plan conjoint the production and marketing ofmaple syrup produced and sold by a producer to a third party in containers of less than

5 L.

With these changes, the Plan conjointand the Federations supervision

would now apply exclusively to bulk production. As this production

represents 85% of total production, the benefits associated with the

products collective marketing would not be compromised by this

streamlining of the maple industrys operational framework. On the

contrary, there is reason to believe that refocusing the Plan conjointonto its main purpose would free

the Federation from many self-imposed constraints and allow it to better serve Qubec maple

producers, who are overwhelmingly engaged in the production of bulk maple syrup.

4.4 Production quotas

As a result of the adoption in 2003 of the Rglement sur le contingentement de la production et de la

mise en march du produit vis par le Plan conjoint des producteurs acricoles du Qubec, the

Federation started imposing, during the 2004 season, quotas on the production of maple syrup in

Qubec, except for producers who sell their product in small containers directly to consumers.

Initially set at 65 million pounds, the overall quota has been revised steadily and is today set at

110 million pounds.

According to the Federation, the first purpose of the quota is to pass on the markets message to

producers, since the total quota is established based on overall market demand. The quota is also

used to establish payment priorities for producers when syrup is sold to buyers. Thus, syrupproduced by a producer within their authorized quota is paid at the price set out in the sales

agreement, less contributions, in proportion to the total quantity sold out of all of Qubecs

production.

The Plan conjointwould now apply

exclusively to bulkproduction.

37


39/71

Producers who produce more than their quotas must deliver this product to the Federation, but they

can be paid for it only when all the in-quota syrup has all been sold and paid for. They are allowed to

use their surplus to complete their quota in a subsequent year. As for producers without a quota,

they cannot produce except for direct sales to consumers in small containers, which is excluded from

the Plan conjoint.

It goes without saying that the system is very restrictive for producers. Those who have no or

insufficient quotas are doomed to stagnation or are strongly tempted, by necessity, to produce

outside the rules of the system, which is strongly reprimanded and a source of severe tension

between the Federation and the producers affected by this situation.

Criticism about the way the Federation manages quotas comes hard

and fast. Besides the text of the Rglement sur le contingentement,

which makes for a very dry read, no clear policy seems to exist on the

procedure for granting the right to produce or the order of priority that must be followed. If such a

policy exists, producers do not seem to be aware of it. In fact, many producers claimed that the

Federations control over production is applied arbitrarily and gives rise to acts of favouritism or to

questionable arrangements to settle derogations or grant rewards to informers in such situations.

It was not possible, within the limited framework of this study, to fully verify the merits of such claims,

which remain troubling if only for the sheer number and diversity of the people who made them. One

thing is certain: the issue of quotas is, by far, the main point of friction between producers and the

Federation. It has been the cause of numerous investigations, seizures, prosecutions and

proceedings before the RMAAQ.

Are quotas effective in limiting production? Is it even necessary to limit production? Those are

important questions.

By the Federations own admission, quotas do not limit the total quantity of syrup to be produced.

The quota certificates delivered to producers show the quantity in units of mass i.e., in pounds. A

producer can exceed this quantity and deliver it to the Federation, the only restriction being that the

This system is very

restrictive for producers.

38


40/71

syrup will be paid for only when the entire quota volume has been sold on the market.

It goes without saying that depending on the seasons and the operating conditions, the average yield

per tap can vary and create a situation where producers end up exceeding their authorized quotas.

What happens to the surplus? Producers can use it to complete their quotas in a subsequent year or

deliver it to the Federation, which will pay them according to the terms mentioned above. Over-quota

syrup is never destroyed or discarded. It is then fully marketed, in compliance with current

regulations. Another possibility is for this surplus syrup to be sold on the black market.

Furthermore, producers without a quota simply cannot produce syrup besides the amount they can

sell directly to consumers in small containers. They cannot store their syrup in barrels to sell them

freely to buyers, since the regulations strictly prohibit it.

Currently, there is no data on the quantities that may be produced in contravention of the

regulations, but it is generally accepted that there is a major clandestine syrup productionnot only

from producers without a quota, but also from producers who have a quota and exceed it. This

production can be sold to buyers who pay cash, which is of course interesting for the sellers.

Although it deviates from the regulations, syrup produced without a quota can end up on the market,

just like syrup produced over a quota.

Though the Rglement sur le contingentement may have curbed

the number of taps, one cannot deny that it has not prevented

legally and illegally produced surplus syrup from reaching the

market. In a study conducted in 2005 (only a short time after the

introduction of quotas), economists Pierre Fortin and Marc Van Audenrode had already made the

following observation: [Translation] Whether production quotas are effective for eliminating syrupsurpluses is uncertain. First, they introduce a significant financial incentive to cheat, which can

undermine both their social and economic effectiveness. Secondly, the markets for maple products

are subject to interprovincial and international free trade.

Quotas have in no wayprevented legally and

illegally produced surplussyrup from reaching the

market.

39


41/71

This last point is very important. The merits of imposing production

quotas are even more questionable in a context where our maple

industry is largely export-oriented and now operates in an

environment where other players have a larger role and are free to

produce as they wish. How do we explain and justify Qubec hindering its development in an

international race where the other players are speeding up and are not limited in any way?

In correspondence on the subject, one producer said: [Translation] I have nothing against quotas,

but since this is a global market, Id like the quotas to be global. Otherwise, let me have the same

freedom too. A provincial quota for a provincial market is fine, but we are far from that. Why do we

have a provincial quota when there are international players? Wheres the justice in that?

Back when Qubec was the source of over 80% of worldwide production, the relevance of

maintaining a quota system was a less pressing question. In a global market where other players

take up more room, the question becomes fundamental. While production quotas and centralized

management of bulk sales can function quite well in a closed market or in a near-monopoly market

where all players are subject to the same rules, this approach becomes

downright problematic in an open market. This observation is all the more

important for highlighting unfair treatment: producers outside Qubec get to

reap the benefits of Qubecs system without having to pay for it in the form

of production restrictions or contributions to marketing costs.

It can be argued that the system has helped to build a price; we must recognize that fact. But at the

same time, isnt it ironic that despite our producers working under a collective marketing system

whose ultimate goal is to provide them with optimal income, they have lower revenues per pound for

their product than producers in New Brunswick, Ontario and the United States? This paradox

remains disappointing to say the least, even though we can attempt to rationalize it.

In such a context, would it not be better to let the price undergo a slight correction in favour of a

greater volume, with just as interesting and likely higher income for producers? If, as the Federation

alleges, the aim of quotas is to pass on the markets message to producers, what better way to

communicate that message than having a fair price and letting production adjust?

Qubec is hindering itsdevelopment in an

international race where theother players are speeding

This approachbecomes downright

problematic in amore open market.

40


42/71

It would be mistaken to expect an anarchic development of production that would crush the price.

Producers must make significant investments to develop their production; this cannot be done

quickly. We must also consider the ability of equipment suppliers to keep up with installation

demand. In addition, Qubec has already put nearly 50% of its tapping potential to work, and

operating new sugar bushes is likely to be more demanding in the future. US producers, with their

formidable potential for development, and the province of Ontario, with its largely untapped capacity,

represent a much more concrete threat of loss of control than the development that can still take

place in Qubec. It may be unfortunate, but that is the reality we face. Can we avoid it?

The overall quota for Qubec has not been increased since 2009. But since that time, global

demand has risen by about 15 million pounds, roughly the yield of 5 million taps. The Federation

says it is aware of the need to increase production and is awaiting a decision from the RMAAQ

regarding the addition of 500,000 taps in the 2016 season. For subsequent years, the Federation

would like to obtain the authorization to increase the quota itself to respond to market needs with

flexibly. Ultimately, it would like to add an additional 2 million taps in 2017.

When you consider the twin facts that all lights are green for market

development and that the Federation itself says it is willing to relaxrestrictions on production levels, it may be worth wondering what the

purpose of imposing quotas on Qubecs maple industry is, considering

that maple producers elsewhere are free to produce as they wish.

In fact, the real stabilizing element for Qubecs maple industry is the buyer-seller collaboration

brought about by the establishment of a marketing agreement and the maintenance of a strategic

reserve to absorb surpluses and ensure supply consistencyquotas have nothing to do with it.

Rather than limit production, wouldnt it be more judicious to devote our resources to designing a real

plan to develop Qubecs maple potentiala plan that identifies objectives, timelines and means of

action, and that producers could use as a solid reference tool for their business decisions? The

industry would be better served by replacing the control approach that has prevailed thus far with

Quotas are not the real

stabilizing element forthe maple industry.

41


43/71

policies focused not only on volume, but also on quality and productivity, while being in line with

growth potential of global demand.

Producers must be given back the right to produce and measure up to external competition in

optimal success conditions. The threat of competition should be a stimulus to growth. As a bonus,such a shift would decriminalize maple production and restore harmony between the Federation

and all producers.

In this context:

It is recommended that production quotas for maple water, concentrated maple sap and

maple syrup produced in Qubec be abolished.

It is also recommended that the MAPAQ define and implement, together with the

Federation of Quebec Maple Syrup Producers, a plan for developing maple potential in

Qubec.

4.5 An offer that adapts to the market

Without quotas, is there a risk of production significantly exceeding the Federations capacity to

receive it and market it? We feel this risk is relative and manageable, since the Federations pricingmechanism and syrup acquisition policy are powerful tools that supply is bound to adjust to.

As weve seen, the current quota policy was not designed as a tool to control the quantity of syrup

produced, but more as a payment priority tool. All the syrup produced is either sold or placed in

reserve as provided by the rules, or else it is sold clandestinely. And in any case, Qubec cannot

control external volume in an open and international market such as the one this product is sold in.

In fact, abandoning quotas can only help create healthier and more realistic pricing dynamics.

Between 2000 and 2014, the weighted price of maple syrup increased from $1.56 to $2.92, an

increase of about 80%, while the production volume increased by 33% during the same period. This

means that the revenues of maple producers have grown much more

as a result of the rise in price rather than volume. In addition, the poorCreate healthier and morerealistic dynamics.

42


44/71

harvest of 2008 led to a hike in the price of syrup that has not gone down since.

It would be desirable to see the balance shift more towards productivity and rigorous management

instead of a simple power dynamic between the Federation and buyers. It would certainly offer better

guarantees for the establishment of a fair price and a better equilibrium between market forces.Moreover, in a global marketplace, pricing will need to take into account global supply and demand in

the future. If, as the Federation claims, one of the goals of quotas is to pass on the markets message

to producers, it is clear that setting a fair price is a much more direct and effective way of getting

producers to understand that message and regulate their production accordingly.

Moreover, the Federation must manage inventory and could very well, even in the absence of

quotas, have a direct influence on production levels by setting the total quantity it can receive from

producers each year based on market demand and the level of the reserve. Beyond that quantity,

the Federation could, for example, offer a lower price for any additional quantity. Producers would

have the choice to either accept the reduced price or sell their surplus production themselves. This

approach would have the advantage of being less drastic and authoritarian than the current quota

system while still influencing producers behaviour.

It would also be a way of giving producers a certain degree of freedom, as syrup offered to the

Federation and not bought by it could be sold directly by producers. In the present state of affairs,syrup produced over the quota or without a quota causes problems, as we have seen.

In this context:

It is recommended that the Convention de mise en march du sirop drableestablish a

two-price system for bulk syrup: one price for syrup bought within the level of acquisition

set by the Federation of Quebec Maple Syrup Producers for each marketing year, and

another, lower price for any syrup exceeding the desired volume.

It is also recommended that the Rglement sur lagence de vente des producteurs

acricoles be amended so that producers can freely market any volume offered to the

Federation for collective marketing purposes and not accepted by it.

43


45/71

4.6 The maple syrup reserve

One of the greatest and most significant contributions the Federation has made to our current

system is, without a doubt, the creation of the strategic reserve. With it, the Federation has the ability

to guarantee security of supply, despite volume changes resulting from seasonal variations or

fluctuations in the market. This mechanism is certainly a major factor in stabilizing the supply and

price.

Created in the early 2000s, the maple syrup reserve has allowed the removal from the market, in

certain years, of syrup quantities that were not needed by buyers. Conversely, at other times, it also

compensated for sales that could not be fulfilled by just that years production. Maple syrup

production was less abundant between 2005 and 2008, and the reserve had to compensate; while it

contained 60 million pounds in 2004 and 51 million pounds in 2005,

the reserve was down to 37 million pounds in 2006 and found itself

empty in 2007

Documents

Rapport Gagné - Version Anglaise