Tuesday, September 4, 2012

Maple Syrup Strategic Reserve

This should be on the back of a milk carton

The news this past weekend, at least in Canada, was all about how a thief stole 10 million gallons of maple syrup from Quebec's strategic maple syrup reserve.

This raised all sorts of questions like: How does a thief steal 10 million gallons of maple syrup without being caught? and, why the heck does Quebec even have a strategic maple syrup reserve anyhow?

I'm glad you asked because, honestly, I have no idea to either question. No matter my childhood ambitions to be a mad scientist and/or criminal mastermind (these are not mutually exclusive), this one was a step beyond me. I had no intent to create, nor steal, a maple reserve. Perhaps a pot of honey wasn't out of the question though....

Ocean's 14: Honey thievery at its finest

The main purpose of a strategic reserve is to serve as an insurance policy against major supply-side disruptions.  For example, the OPEC embargo of 1973 or the Arab Spring Uprisings of 2011 - which greatly reduced oil exports to the Western world. On that note, this is why many economists feel hesitant to release oil from the reserve due to spikes in demand  instead of sudden disturbances in supply. At the peak of the bubble in 2007, there was considerable pressure to release oil from the strategic reserve to lessen the impact on consumers - but the results would have been questionable at best when global demand would have kept rising.

Any commodity that can have sudden supply shocks is a commodity worthy of having a strategic reserve for. Add that to the fact that Canada has a maple syrup reserve, and then we can deduce the fact that syrup supplies probably experience a fair bit of volatility. Considering that Maple tree is a national treasure to Canada (you know, the leaf on the flag), as well as the number of jobs that Canadians hold in the syrup industry and it very quickly makes sense that they find it to be their duty to stabilize the price of maple syrup. 

A quick search verified this hypothesis: weather plays a huge role in the amount of sap that a maple tree produces year to year. The trees need cold nights and mildly warm days. Some years there is a maple flood and other years there is a maple drought. The flood can push prices so low that it puts farmers out of business and the drought can do the same by not producing enough for a couple of years. 

A strategic reserve creates long term price and supply stability by stocking up when times are good and releasing syrup when times are bad. Funny enough, this is the same basic principle behind Keynesian Economics. 

1 comment:

  1. Well I'm very glad to see someone is actually thinking ahead :) As insightful as always!