MARKET ANALYSIS (The Maple Syrup Company)

"Maple syrup is one agriculture crop in which there is no surplus. In fact, demand far exceeds the available supply." The above quote was extracted from a recent article written by the Michigan State University Extension.

What follows will provide an overview of the maple syrup industry. Please Note: Much of the following Industry Overview has been extracted from articles found at the website of Agriculture Canada and Agri-Food Canada. The conversions tables used in the Industry Overview are as follows:

1 litre = 1.325 kilograms (2.92 lb) 1 US gallon = 3.79 litres 1 US$ = C$1.35 (1996)        

INDUSTRY OVERVIEW:

World Situation:
Canada accounts for 80% of the world production of maple syrup and the remaining 20% is produced in the United States. The main producing provinces are Quebec with 90% of the national production, Ontario (7%), New Brunswick (2%) and Nova Scotia (1%). About 80% of the Canadian production is sold in bulk, mainly from Quebec and New Brunswick. The remaining is sold at the farm level or directly to the retail market.

About 12,000 producers commercially produce maple syrup in Canada. According to provincial figures, in 1996 the number of taps was close to 27 million in the country with an average yield of syrup per tap of 2 lbs (0.7 kg). Maple syrup is produced by concentrating maple sap through evaporation. Some producers use "reversed osmosis" in the process to increase effectiveness.

World maple production increased by almost 50% over the last ten years, mainly due to the increase of the Canadian production.

Canadian Situation:
Canadian maple products have been renowned world wide for their quality and taste. Most Canadian maple syrup is graded and marketed as Canada no.1 (Extra Light, Light & Medium), 2 (Amber) or 3 (no colour requirement). All packers must be registered with Agriculture & AgriFood Canada when trading internationally and interprovincially.

• Canadian production has been trending upward since the beginning of the 1980's with the 1992-1996 average production at almost 17,000 kiloliters, up 85% compared to the 1982-1986 period.
• Over the same periods, unit farm value moved up 29% from $4.15 to $5.37 per litre.
• Prices fluctuated significantly during the last fifteen years from a low of $3.00/litre in 1981 to a high of $6.74 in 1988. From 1992 to 1996, however, prices increased by 36% from $4.50 to $6.13/litre.
• While Quebec dominates the Canadian production, the farm value per unit of Quebec's maple products has generally been lower than that of the other provinces due to the fact that a large portion of the Quebec maple syrup (around 85%) is marketed in bulk.

1996 Crop:
The 1996 Canadian maple syrup production is at 19,493 kiloliters the second largest production in the last ten years, right after the 1994 record yield. The production of bulk syrup was graded in the light (29%), extra light (22%) and medium (21%) colour classes. Total farm value is estimated at over $119 million in 1996, up 28% compared to the previous year and 50% compared to the five year average. The farm value per unit of maple products is estimated at $6.13/litre, similar to the previous year but up 22% compared to the five year average.

1997 Crop:
1997 Canadian production is preliminarily estimated at 17,500 kiloliters ( 15,800 kl for Quebec), 10% lower than last year but 2% above the five year average. According to industry observers, the syrup is reported overall to be slightly darker than average.

United States Situation:
The 1996 US maple syrup production was almost 6,000 kiloliters (1.6 million US gallons), the highest production since 1992, up 43% compared to 1995 and up 26% from to the five year average. Vermont (35%), New York (22%) and Maine (11%) accounted for 68% of the 1996 US production. According to USDA, the average 1996 price for a US gallon was US$26.90 (US$6.91/litre), slightly up from 1995: prices varied considerably among states, from $21.90 in Maine to US$42.70 in Connecticut.

According to USDA, the 1997 US production is estimated at 4,900 kiloliters, down 26% compared to last year but up 4% compared to the five year average. Average price is expected to be around US$23.60 per US gallon.

Canadian Trade:
Canada is the world leader in the export of maple products with sales in 40 countries exceeding $90 million in 1996. Exports to countries other than the US reached $20 million. The US exported US$3.4 million (C$4.6 million) of maple products during the same period.

Canadian maple syrup exports rose from $52.6 million in 1993 and continued to grow throughout 1997 at a time where it exceeded $102 million. The United States is by far our largest customer, representing approximately 80% of the 1997 Canadian exports. Germany and Japan are Canada's second and third largest export markets, representing approximately 5.7% and 4.4% respectively of the 1997 Canadian exports. Please refer to Appendix # 5 for world production & Canadian exports of pure maple syrup.

Factors Affecting Future Growth:

• The industry has proposed to amend the Maple Products Regulations to include a new grade name (Canada Commercial) for bulk maple syrup to be exclusively used by the processing sector. If this amendment is accepted, it could stimulate sales to the processing industry.
• Even though the maple industry is highly export oriented, it needs to continue to focus its energy on maintaining and even increasing exports to its traditional markets while developing new ones.
• Prices, economic situation in importing countries, development of new products and marketing strategies will all play a role in the expansion of the industry.

____ "END OF INDUSTRY OVERVIEW"

Smith Island Situation:
There currently exists one small commercial producer of maple syrup on Smith Island. During our discussions, he indicated his operation is in the 2,000 tap range. This is the size of operation we intend to have at the end of year one.

We are of the understanding that his evaporation equipment is now at full capacity for the number of taps he currently operates. His operation would require just as much capital injection to expand as we require to begin. He may even require more as he may have to a acquire additional woodlots. He indicated that he processes anywhere between 10,000 to 14,000 gallons of sap annually into maple syrup. Based on the 40 to 1 raw sap to syrup conversation ratio, the maximum amount of syrup he would have available is 350 gallons (14,000 / 40).

There is definitely more market opportunity available on Smith Island. It is also good to know that his operation is obtaining a larger quantity of sap then we budgeted in our plan.

We are also aware of another person that purchases bulk syrup from New Brunswick and further refines this syrup into maple butter and maple candy. We have decided to concentrate solely on the production of maple syrup as opposed to other products such as maple butter, maple candy, or fudge. Once we are comfortable with processing and growing our business to the 20,000 tap range, we will look at additional products.

We also anticipate other woodlot owners may begin operations in conjunction to ours. This may be beneficial to us as we may be able to generate additional revenue by assisting such newcomers in the processing of their sap (provided we have excess capacity). The more interest you can generate in a new industry, the faster economies of scale can be achieved.

There are also artificial maple flavouring products available, however, our primary target market (speciality shops and gift shops) would not carry such products. Consumer life styles and preferences are changing. Today's consumers are more health conscious and seek out more natural products. Maple syrup is truly a natural product. It fits very well within the changing trends of the new consumer.

We are of the opinion that the maple syrup industry will continue to grow as people recognize it as a natural, chemical free, fat free product.