Canada’s “Maple Mafia”

This the full 3545-word text of one of my postgraduate essays, "Canada’s “Maple Mafia”: Regulatory Capture, Path Dependency, and Canadien Values in Québec’s Maple Syrup Industry", written in 2018. Enjoy!

Canada’s “Maple Mafia”: Regulatory Capture, Path Dependency, and Canadien Values in Québec’s Maple Syrup Industry

The Fédération des producteurs acéricoles du Québec (FPAQ) controls all bulk sales of maple syrup in Québec. Since the early 2000s, they have used a quota system and strategic reserve to maximize the price of maple syrup. Media have called them "the Saudi Arabia of maple syrup" and maple syrup producers have called them a "mafia" (Kuitenbrouwer 2018; Cohen 2016). Perhaps most surprisingly, the Federation’s power is granted by Québec’s provincial government.

How can we account for the government of Québec's support for a maple syrup cartel? A government-backed cartel is highly unusual in a liberal democracy. There is no clear explanation how increasing the price of maple is in the public interest. Despite increasing media attention, no scholarly work questions the government’s support of FPAQ.

In this essay, I begin by considering three theories of regulation which may provide insight into this case. I suggest that public interest explanations of market failure are implausible. Instead, I propose that regulatory capture and path dependency could explain this case. In the next section, I analyse media, government, and FPAQ sources. I find that government support for FPAQ rests on path dependency and cultural ideas about the role of maple. Because FPAQ actively promotes these ideas about maple, I suggest they may have captured legislators. I conclude by suggesting the wider implications of my findings.

Theories of Regulation

In this section, I explain why I do not think the government's support of FPAQ's Maple Syrup Reserve and quota system can be explained by a market failure rationale. I then propose two more plausible theories: regulatory capture and path dependency, as outlined in Historical Institutionalism.

Market Failure

Theoretically, the government of Québec could be protecting citizens' interests through FPAQ by preventing market failure. Maple syrup production depends on weather conditions; some years see a much larger supply of maple syrup than others. Left to market mechanisms, maple syrup would therefore be much more expensive some years than others, and customers would sometimes be priced out of the market. Regulation mandating contributions to a Maple Syrup Reserve would improve the stability of supply and price, which would be justifiable if it resulted in "socially desirable results" (Baldwin et al. 2012:19). Generally, regulation to improve the stability of supply is only used when "demand is inelastic" (Ogus 2004:42). If consumers are unable to find an alternative to maple syrup, we can assume the government regulated the maple industry in order to solve a market failure problem.

FPAQ's Maple Syrup Reserve and related collective marketing system are unlikely to be solving a market failure problem. During years when maple syrup production is low and prices are high, consumers could use honey or sugar instead of maple syrup. There is not a straight-forward market failure explanation for the government's intervention in this matter.

On the contrary, it would be in the public interest to avoid industry cooperation. Competition in the maple industry would be expected to drive down maple prices, which is in the best interest of consumers.

Historical Institutionalism

The maple industry’s cooperation would not have been possible in every setting. Theories of Historical Institutionalism suggest FPAQ's new powers were made possible because of its history as an institution, and the institutions that surround it.

In this paper, the term "institution" includes both formal and informal rules, routines, and customs. As in game theory, I define an institution as "a self-sustaining system of shared beliefs about how the game is played” (Aoki 2001:185) The institution of FPAQ includes not only its written regulations, but also its normal pattern of behaviours. I take institutions such as FPAQ to be endogenous—that is, FPAQ shapes the behaviour of individuals, but individuals also shape the institution of FPAQ. The formal and informal institutions of the maple industry in Canada are always evolving based on the choices of the people involved.

Although people shape institutions, it can be quite difficult to radically change the behaviour of an institution in the way one intends to. This is because institutions are path dependent. I take a "narrow" view of path dependency, such as the definition proposed by Margaret Levi (1997):

once a country or region has started down a track, the costs of reversal are very high. There will be other choice points, but the entrenchments of certain institutional arrangements obstruct an easy reversal of the initial choice. (28)

I expect that the institutions of the Québec maple industry are path dependent and choices that were made in the past are now difficult to reverse.

The government of Québec chose to give FPAQ some self-regulatory powers in the 1960s, when maple was a "cottage industry" with little money in it. Although the decisions made at the time likely seemed inconsequential, the costs of reversing this initial choice now would likely be quite high. Path dependency has led to FPAQ becoming a powerful body and effectively the only option for regulating the maple industry.

Proposition: FPAQ is a path-dependent institution. Early government decisions to grant FPAQ regulatory powers have led to FPAQ's sweeping powers now.

Regulatory Capture

Capture theory suggests that the government-backed Maple Syrup Reserve and quota system was created for the benefit of large maple producers. George Stigler's (1971) seminal paper on regulatory capture argued that "as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit" (3). The concentrated interests of large, profitable corporations (or large maple producers) will overrule the diffuse interests of the less-organized public because large corporations have shared interests and lower organization costs (Baldwin et al. 2012:44; Ogus 2004:71). Private interest-based theories of regulation would expect that large maple producers would attempt to maximize their profits through regulation.

Private interest theories have been criticized for assuming that actors always attempt to maximize profits as efficiently as possible. Recent developments in behavioural economics cast doubt on human rationality, suggesting consistent biases (Thaler and Sunstein 2008). Additionally, critics question whether actors always attempt to maximize material gains; perhaps they instead try to maximize happiness or balance several priorities (Ogus 2004:74). On the back of these criticisms, newer capture mechanisms have been proposed that rely on imperfect rationality and shifting motivations. These include cultural capture, economists’ capture, and the provision of expertise by the industry (Carpenter and Moss 2014:69).

Carpenter (2014) argues that researchers of regulatory capture must demonstrate more than plausibility: they must show evidence that industry has intentionally captured regulators. He expects researchers to establish five claims: There exists a general interest; there exists an industry interest; the general and industry interests differ; there exists a mechanism of capture; and legislators repeatedly choose industry interest over the general interest. If a shift in policies occurs that favours industry, but was not intentionally caused by industry, we should consider it as a form of “false consciousness,” not regulatory capture (Carpenter 2014:62).

Capture theory provides a straight-forward explanation for the Maple Syrup Reserve: large maple producers are using their influence to benefit at consumers’ expense.

Proposition: Large maple producers have "captured" government legislators, resulting in regulation that prioritizes industry interests over the public interest.

Analysis

Using scholarly articles and books about Québec’s history and culture for background, I read local news articles, watched a documentary about FPAQ, browsed the FPAQ website, and read the English version of the relevant legislation. I found that FPAQ’s current success depends on the narrative around maple syrup as an integral part of Québec’s unique cultural heritage. FPAQ is able to promote this narrative due to its incremental increases in power over time and Québec’s strong cultural identity.

Context

Québec is a predominantly French-speaking area of Canada. Québec City, founded in 1608 by Samuel de Champlain, was arguably Canada’s first permanent settlement by Europeans. At the Battle of the Plains of Abraham in 1759, British troops defeated the French and claimed Québec for their own. However, due to concerns about American expansion, they allowed local residents to maintain their own language and culture. 

Since Confederation in 1867, Québec has been a province of Canada. In Canada, responsibilities are divided between the federal and provincial governments. Each province’s elected government is responsible for local matters, such as education, health care, transportation, and some natural resources. Québec’s provincial legislature takes an active role in promoting and protecting Québec’s culture, for example by passing several language laws in the late 20th century. 

Québec’s motto is Je me souviens—“I remember”—and refers to remembering Québec’s unique heritage and cultural identity. Québec’s cultural legacy is remembered in part through le patrimoine, “the common property of the Québecois” (Cameron 1978 cited in Handler 1988:141). The patrimoine includes physical objects, such as traditional furniture and historic buildings, but also includes language, nature, and traditions. Maple syrup is part of this patrimoine. Tapping maple syrup trees allows modern Québecois to connect to their past and their families and “consolidate a rural identity” (Hinrichs 1998:522). As recently as the 1990s, extended families were using the traditional methods of a spigot and a metal pail to collect the sap of maple trees and boiling it into syrup. Maple is socially and culturally important to the Québecois.

Historical Institutionalism

The advantages maple producers currently enjoy are based on incremental changes over the past hundred years. The creation of FPAQ resulted in the creation of a new interest group—maple producers now had a vested interest in continuous price increases for maple syrup. The government’s decisions at different choice points have resulted in an institution that is difficult to control.

FPAQ gained power incrementally. FPAQ, the Federation of Québec Maple Producers, is an offshoot of the union des producteurs agricoles, Québec’s agricultural union. Québec’s farmers first unionized in 1924. In 1956, the government of Québec passed the Farm Products Marketing Act, which allowed collective marketing of agricultural products for the first time. The Farm Products Marketing Act also created the province’s agricultural marketing board and a government regulatory body responsible for overseeing collective marketing. FPAQ was created in 1966 and adopted a joint marketing plan in 1990, with 84% of producers voting in favour. [FPAQ Chronology] 

FPAQ is not the only Canadian union collectively marketing agricultural products. The Agricultural Products Marketing Act allows for various agricultural unions throughout Canada to collectively market and sell their goods (Government of Canada 2018). A legal framework already existed for FPAQ’s collective strategy; co-operatives like the Saskatchewan Wheat Pool had been collectively marketing and selling products since the 1920s.

FPAQ developed greater power in the early 21st century. In 2000, FPAQ established its Global Strategic Reserve, allowing to reduce fluctuations in year-on-year maple supply. In 2002, FPAQ established a maple syrup sales agency, and in 2004 established production and marketing quotas. Today, FPAQ is solely responsible for bulk orders of maple syrup and takes a commission from all sales. 

Here’s how it works: there are 13,500 maple-syrup producers in Québec. Each is permitted to send a fixed amount to FPAQ for sale that year, a quota that was established in 2004, even as U.S. production has exploded (up 27 percent from 2015). Members of the federation—Québec’s bulk producers are required to join—give their harvest over to FPAQ, which inspects, tastes, and grades the syrup. Some of it is sold immediately; the rest is stored in the Reserve. Producers are paid only when the syrup is sold, which can mean years. FPAQ keeps $54 for each barrel, a kind of tax that pays for the advertising, the testing of the recipes, the upkeep of the Reserve, and so on. … In this way, the price of syrup is stabilized, benefiting even the competitors across the border. (Cohen 2016) 

All bulk sales must be negotiated by the Federation; producers are regularly inspected for compliance and can be fined thousands or even millions of dollars for selling maple syrup on the black market. The quota system, while restrictive, has resulted in a huge increase in the price of maple syrup. In 2016, FPAQ “announced that it had put 104.3 million pounds of syrup on the market in the year that ended on Feb. 27 — a new high that brought in a record $288-million payment for approximately 7,300 Québec producers” (Woods 2016). Between FPAQ’s control of the price, increased demand overseas, and newer, more efficient technologies, maple syrup is an increasingly profitable industry.  (FPAQ Chronology; Dirty Money 2018; Cecco 2017)

A potential threat to FPAQ’s continued dominance emerged in early 2016—the government-commissioned Gagné report.

In 2015, Québec’s minister of agriculture, Pierre Paradis, commissioned a report on FPAQ and the industry—just how far could that 72 percent [share of maple syrup produced in Québec] fall? While giving proper credit to the cartel, the report, noting, among other things, how readily journalists like me compare FPAQ to OPEC, called on the federation to loosen its rules, scrap its quotas, and let a thousand flowers bloom. (Cohen 2016)

FPAQ responded by calling the report “bullshit” and organizing buses to transport maple producers to Québec City for a protest (Woods 2016). FPAQ’s Director General, Paul Rouillard, told journalists that “the report is part of a co-ordinated attack from the government designed to undermine the collective marketing system that has the support of 84 per cent of its producers — a figure that makes it ‘an extremely democratic institution’” (Woods 2016). Hundreds of maple producers protested the report, and the government took no further action. By allowing the creation and growth of FPAQ, the government unwittingly created an interest group of maple syrup producers; the government now finds it difficult to change its approach to the maple industry.

Regulatory Capture

FPAQ seems to have captured legislators by leveraging their cultural status as authentically Québecois. Competition between maple syrup producers would drive down prices, which would serve the public interest. FPAQ’s system of cooperation drives up prices, which serves the maple industry generally and the union itself in particular. FPAQ continually reinforces the message that maple is part of le partimoine; by linking maple to Québec’s treasured heritage, they influence legislators to protect the maple industry. As a result, legislators allow FPAQ to continue raising the prices of maple, controlling who produces maple, and collecting money from the sale of each barrel of maple syrup.

The general public and the maple industry have competing interests when it comes to the price of maple syrup. As demonstrated above, because there are viable alternatives to syrup during years where the syrup harvest is smaller than usual, the public would prefer a freer market. Lower prices from competition between producers would be in the public interest. On the other hand, maple producers prefer higher prices. FPAQ had the difficult task of “taking a business in which few could make a decent living…and turning it into a respectable trade” and they have accomplished their goal (Cohen 2016). An increasing number of producers work solely or mainly on maple, and as prices rise, so do their incomes. Additionally, FPAQ takes a commission per barrel that they sell—the current system is worth millions every year for the union.

Some producers have vocally opposed FPAQ. About 70 maple producers have spoken out against FPAQ, preferring to sell their maple privately and freely (Cecco 2017). Many journalists use this as evidence for the harmful effects of FPAQ on maple producers. However, these producers, as well as producers in Ontario, New Brunswick, and the United States, still benefit from the artificially high prices FPAQ has created (Cohen 2016). If FPAQ were dismantled, it would likely be to the detriment of these dissenting maple producers.

FPAQ has used cultural capture to advance the maple industry’s interests. As James Kwak defines it, in cultural capture, “an industry might consciously set out to induce its regulators to identify with industry members and their interests, and those regulators might make decisions because their conception of the public interest has been colonized by the industry” (Kwak 2014:79). Kwak describes three mechanisms which allow for cultural capture: identity, status, and relationships (2014:80). I argue that FPAQ has used maple producers’ status as authentically Québecois—part of le partimoine—to capture legislators.

An example of these efforts toward cultural capture occurred when Québec’s Minister of Agriculture visited FPAQ-funded sugar shack Parc du Bois-de-Coulonge. FPAQ issued a press releasing stating, “As the world’s leading source of maple syrup, Québec producers can count on the support of their provincial government … The maple syrup industry is an integral part of our heritage in Québec” (FPAQ, FPAQ and the Québec Agricultural Minister…). Québec’s Minister of Agriculture was invited to tap a sugar maple in order to “open the season” as a sign of his support for the maple industry. Beyond organizing events and hosting visitors at their sugar shack, FPAQ maintains several promotional websites, which promote maple syrup both abroad and at home, and regularly produces research and reports about the maples syrup industry. FPAQ works to influence the narrative around maple syrup in Québec.

Due to the maple industry’s cultural influence, the government of Québec has prioritized the maple industry’s interests over the public interest. In the early 2000s, the government allowed and even put into law FPAQ’s compulsory quota system. The government allows FPAQ to take a cut of every pound of maple sold. It allows mandatory and invasive inspections of sugar bushes, and it allows FPAQ to punish noncompliant producers with fines or by seizing their maple crop. In fact, Québec’s police force assist with seizure of noncompliant maple crops. Over the past two decades, public complaints and expert opinions have not changed the government’s position—they firmly support FPAQ’s work.

Ideas

Maple syrup is an important part of Québec’s heritage and the people of Québec do seem to want to support the maple industry. News articles do not debate which approach to maple would be best for the Québec public; rather, they debate what would be best for the maple industry. Some argue that deregulation or reregulation would be better for maple producers, but no one argues that maple should be deregulated because maple syrup would become cheaper for consumers. It seems that much of FPAQ’s success is attributable to ideas that exist independently of FPAQ itself. Cultural capture would not have been possible without the authentically French-Canadian cultural status of maple producers.

However, it is not clear that FPAQ is preserving le patrimoine with their actions. 1200 maple producers are waiting for approval to join FPAQ’s quota system—to manage the maple supply, FPAQ only approves new producers slowly, which means that many producers aren’t able to sell their sugar, except directly to local customers (Dirty Money 2018). Local media, Twitter, and think tanks are increasingly sceptical that FPAQ’s methods are good for Québec. It seems that the public does want to support the maple syrup industry, but FPAQ is not supporting the maple industry in a manner consistent with cultural ideals.

If the public do support FPAQ’s actions, this is not a case of cultural capture. Instead, academics should consider whether this case reflects the public’s “false consciousness” or whether Québecois consumers are happy to pay a higher price for maple syrup in order to protect their heritage.

Conclusion

The government of Québec has continued to support FPAQ due to incremental changes in institutions and cultural ideals around le patrimoine. In news articles, the maple debate is always framed around what is best for producers, not consumers. It is not clear to what extent this narrative frame has been created by FPAQ and to what extent it rests on the existing cultural identity of the Québecois. FPAQ has been able to gain and maintain its power through incremental institutional changes which initially took place when maple was a small industry that made very little money. Maple producers are not the richest or best educated in Québec, but they seem to have elevated status due to their participation in Québec’s traditions. As a result, FPAQ in particular and the maple industry in general are thriving, making nearly a billion dollars every year in sales in an industry with only 13,500 producers (Vermont Legislative Research Service 2017:5).

Both historical institutionalism and regulatory capture play a role in the government’s continued support of FPAQ, though not in the way I expected. FPAQ did gain its power incrementally over time, but this seemed to have little to do with its continued success. It still demonstrates remarkable success with legislators. It seems that the evolution of FPAQ was necessary, but not sufficient, for it to gain significant power. Rather, its power comes from its claims to cultural authenticity. FPAQ claims it is making maple syrup (and Québecois culture) globally relevant. It brands itself as reviving a dying industry. Through this messaging, FPAQ makes itself and the maple syrup industry politically untouchable.

This research provides some evidence that FPAQ has captured Québec legislators. Further research should be done to confirm these findings. It would be especially worthwhile interviewing current and former legislators, including former Minister of Agriculture Pierre Paradis who commissioned the Gagné Report. Additionally, more research should be done into the public’s attitude toward industry cooperation, maple, and le patrimoine. A more substantive finding of cultural capture of Québec legislators would provide significant support to Kwak’s theory of cultural capture and would have important political implications for the people of Québec. 

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