The Sweet Secret in the Tit-for-Tat Tariffs

Matthew Carr By Matthew Carr
Emerging Trends Strategist

Commodities

Tensions are high.

And the potential for a new trade war is in bloom.

The White House recently announced tariffs on steel and aluminum from Canada, Mexico and the European Union.

The result? Chaos.

Jean-Claude Juncker, president of the European Commission, promised immediate retaliation.

Closer to home, the response from our closest ally was just as swift.

Canadian Prime Minister Justin Trudeau announced tariffs of up to 25% on $12.8 billion in U.S. imports. That’s roughly equivalent to Canada’s steel exports in 2017.

It’s the strongest trade action taken by Canada since World War II.

But the Canadian tariffs aren’t on just steel and aluminum.

They impact U.S. exports of apples, ballpoint pens, cranberries, cheeses, grapes, lamb, mattresses, orange juice, pork, toilet paper, whiskey and – perhaps the most controversial – maple syrup.

When Trudeau included maple syrup in the tariff action, many Canadians felt it was a symbolic gesture…

A patriotic nod to the country’s staple.

The world knows the maple leaf dons Canada’s flag.

In fact, our neighbor to the north produces nearly three-quarters of the world’s pancake topper. And 92% of the sweet concoction comes from one province – Québec.

In 2017, Canada’s maple syrup output was 12.53 million gallons. Of that, Québec produced 11.5 million gallons.

That’s enough maple syrup to satisfy IHOP’s customers for 7 1/2 years.

But unbeknownst to many around the world, Canada is home to an extremely powerful cartel: The Federation of Québec Maple Syrup Producers.

It’s referred to as “the OPEC of Syrup.” And for good reason…

But Trudeau’s 10% maple syrup tariff revealed a secret in the tit-for-tat tariffs… U.S. output is increasing, threatening Canada’s maple syrup dominance.

(It’s the same problem the other OPEC is facing!)

Inside all the tough trade talk, one nugget of information produced gasps and a national uproar.

Canada imports roughly $13 million of maple sugar and syrup from the U.S. each year.

Now, thanks to a changing New England climate, American producers are tapping sugar maples at four times the rate of their Canadian counterparts.

And for more than a decade, U.S. liquid gold output has soared…

We’ve been in a silent maple syrup boom.

Consumers want less and less to do with corn syrup. And they’re open to all sorts of alternatives. In turn, U.S. maple syrup production is up 189.6% since 2002.

But the value of American maple syrup output has surged even more.

According to the National Agricultural Statistics Service, it’s increased 263.7%, from $40.5 million in 2002 to $147.28 million in 2016…

Similar to Canada, a single U.S. state is the centerpiece of the industry.

Vermont accounted for 46.4% of 2017 production.

And the value of Vermont’s maple syrup production in 2016 was $59.7 million. That’s a sizable chunk of the U.S. market.

But for now, the U.S. market is dwarfed by Québec.

Last year, the Canadian province’s syrup market totaled $339.9 million. And its sugary exports were worth $283.7 million.

As the U.S. has demanded more maple syrup, Canada has prospered.

Québec’s exports have risen 39% since 2013.

Not only is the U.S. the largest maple syrup importer, but our desire for the Canadian sweet stuff is almost six times that of the second-largest consumer

Personally, I don’t believe trade wars benefit anyone.

But the continual dust-ups show a shifting economic picture and the fears each side has about national industries.

Canada’s 10% tariff on U.S. maple syrup is small potatoes.

But it’s an acknowledgement of a threat to its global dominance. And it exposes an opportunity we can’t ignore.

For investors, maple syrup production – especially in New England – is a traditional family business. That’s means there are few ways to publicly invest in it. The best bet is to target equipment or membrane manufacturers.

And the booming maple syrup industry on both sides of the border is why a company like H2O Innovation (TSX-V: HEO; OTC: HEOFF) is seeing its maple farm business increase more than 20% year over year.

Maple syrup isn’t just for topping pancakes and waffles… or, if you’re a true connoisseur, sipping straight from a bottle of the high-end stuff!

There’s a booming industry underneath. And that’s a worthy takeaway from the current tough talk on trade.

Good investing,

Matthew