France Can’t Cut The Mustard

Over the course of the Covid pandemic, I have written a series of articles about the shortages caused by obstructions in supply chains. The focus was primarily on the United States. I talked about everything from Bubble tea to semiconductors. 

After a while, these shortages became so pervasive that the discussion moved to the question of whether even to acknowledge the problem. And while some places in the U.S. are “enjoying” significant excess inventory these days, this is certainly not the case everywhere or for every product.  

This week, we’re taking this newsletter on the road! My family and I are in the French Alps on a hiking vacation. Here in France, one of our favorite activities (in addition to hiking) is going to the local stores to pick up local produce, baguettes, and cheese for our outings. 

So far, we’ve managed to find everything that we need except for one thing: mustard. We walked through every aisle at one of the main supermarkets but failed to spot the elusive condiment. 

My daughter, who is learning French, approached one of the store associates and asked where we could find some. He was very quick to respond that they had none. Nothing. Rien.

We tried other stores and also came away disappointed. 

How is it possible that there is no Dijon mustard to be found a mere 300 km from Dijon?   

The struggle is real. 

Now, if you go to any supermarket in the U.S. and look for mustard, chances are that you will find plenty. However, you’re probably looking at the wrong kind.

In France, much of the mustard sold and consumed is of the Dijon type, which, as you probably know, bears little resemblance to the sweeter stuff used on hot dogs and hamburgers in the U.S. apart from the color. 

According to some reports, the French consume an average of a kilogram of mustard per person annually. (I’m not sure I believe this statistic, and my attempts to confirm it have so far proved futile).

Running out of Mustard is equivalent to running out of cream cheese and bagels in New York. 

Why is there a shortage?

When seeking to explain why there is no Dijon in Dijon, we can look, first, to the government, for

“Under French rules, Dijon mustard must be made from brown seeds (Brassica juncea) or black ones (Brassica nigra).”

Next, unusual weather plans have decreased the availability of the raw ingredient:

“Usually, French manufacturers import from Canada some 80% of the 35,000 tonnes of seeds they need. Last year, however, a drought struck the provinces of Alberta and Saskatchewan, where most of the crop is grown. The Canadian harvest was about half of that in a normal year.”

Add the geopolitical conflict du jour:

“Though Ukrainian mustard seed production is minor compared to Canadian exports, prices for mustard seed have shot up significantly in the past year . . . creating incentive for Ukrainian farmers to grow it. Problem is, most of the fields are in southern Ukraine — Mykolaiv or Kherson — and currently occupied by the Russians.”

And, as we all have learned over the past two years, hoarding is a great way to increase the severity of a shortage:

“In the tourist shops . . . people used to buy one or two pots to take home. ‘Now, they grab about ten!’ Durand [a shopkeeper] says. ‘They see mustard and they throw themselves at it.’"

Another way to make the situation worse is rationing, as, indeed, some sellers are trying to do:

And if you think I’m exaggerating the severity of the situation, just consider the words of one local:

“My grandfather has lived through two world wars and the post-war period when there were ration tickets in France, but even then there was mustard! Now, whether you go to Lille, Marseille, Bordeaux, or Strasbourg, nobody has any mustard left. It's all sold within a few hours."

The response, as expected, has been a push to on-shore production back to France. 

 

How long will the shortage last?

The short-term outlook is grim. Burgundy (the main local source of the raw ingredients) farmers have already harvested this year’s crop of brown mustard seeds, and the mustard made from those seeds will arrive in the stores around October. The Canadian seeds are usually not imported until December, which means that the shortages are here to stay at least until 2023. 

The Great French Mustard Shortage makes a point that I have been trying to make repeatedly: the frequency of geopolitical events and climate events with repercussions for markets will only increase.

Sure we can survive the mustard shortage. But what can we learn from it?

First, you can be sure that the tightening of regulations will only cause more and worse shortages of goods and services. Sure, it’s great to call mustard “Dijon” only if it is made from brown seeds—just make sure that the supply of this key ingredient is not limited to Saskatchewan. 

I made the same point about “friendshoring.” It might seem like a good idea to restrict supply chains to allies and strategic partners, but this strategy only works if you and your friends have control over all of the key components in a supply chain. 

And this is very much related to the question of how firms should hedge against climate and geopolitical risks (among other risks).  And I think that any solution, in the long run, must have some component of nearshoring and most likely onshoring for key components. If Dijon is central to the French diet (and culture), then the French need to sew up the value chain and the supply chain—since things that can go wrong will go wrong. It’s not about comparative advantage. It’s about having greater control and visibility of the supply chain. 

Applying These Lessons to Electric Vehicles

While Dijon mustard and electric vehicles seem a world apart, the recent Inflation Reduction Act (IRA) may highlight some similarities that make the lessons about the former quite applicable to the latter.

This brings me to the observation that one of the main features of the IRA—an important goal of which is to facilitate U.S. efforts to combat climate change—may, in fact, negatively impact electric vehicles. Specifically, under the act:

“New electric vehicles could become ineligible if they don’t meet certain manufacturing requirements, such as being assembled in North America or using critical minerals and components that are sourced domestically or from the country’s free-trade-agreement partners. Some automakers have warned that these targets could be impossible to hit, which in turn might make it more challenging for consumers to find qualifying EVs.”

Many of these provisions were added as part of the negotiations with Sen. Joe Manchin of West Virginia, who has expressed concerns about the extent of China’s control over supply chains, in particular, the materials needed to make batteries, including the kinds that power electric vehicles..  

The problem of meeting most of the standards in the IRA in the short term have inspired calls to ease the deadline for compliance with the act. 

The IRA is an example of thinking well into the future, even if, in the short term, some of its provisions hurt consumers, car makers, and even the cause of combating climate change. This act and the CHIPS Act, which provides subsidies to build fabrication capacity in the U.S., show the government in a rare act of long-term supply chain planning. 

We tend to see lots of regulation in the absence of long-term planning. You may disagree with the government’s goals and role in these two new acts. But there is no denying that these acts set multiple goals that, if achieved, stand to make supply chains more robust when it comes to the products that are central to economic stability over the next few decades.