Industry Analysis

Example of an Industry Analysis.

The Honey Industry, 2017

My husband and I own and operate an agriculture-based business. Currently the principal product

produced by the business is honey. The farm has been in operation for the last ten years. We have

produced a variety of products beginning with eggs, pork, and honey. The farm has a permaculture

inspired design. This means that buildings, infrastructure, animals, and plants are all deliberately placed

in such a way as to maximize the natural desert environment and to support the growth of the farm as a

whole. Part of this design was a very deliberate decision to avoid debt (thereby keeping our costs low)

and to only grow as and when the farm brought in enough income to do so. Egg and pork production

was relied on heavily in the first 8-9 years to bring in enough revenue to build up the infrastructure

needed for honey production. Beekeeping at a commercial level represents a significant investment in

infrastructure and equipment. This is the first year that the farm has relied solely on beekeeping for its

revenue. Honey is the principal product but bee removals, queen breeding, pollination, and nuc

production also provide revenue sources.

Currently, the company sells only in the Tucson market. In this last year, we harvested approximately

3600 lbs of honey. There is enough demand locally that all of the honey was purchased at the premium

price of $5lb wholesale. This amount of production represents approximately 130 actual bee colonies of

which only 75-80 were producing honey. As you can see from the chart below, this production number

is right on track with estimates from our most recent business plan.

Table 13: Projected Honey and Beeswax Production over 10 Years

Year Total

Numbers of Hives

Number of Support

Hives

Number of Honey Production Hives

Honey Production (lbs)

Wax Production

(lbs)

2017 1 170 90 80 3,600 160

2018 2 250 100 150 6,750 300

2019 3 500 200 300 13,500 600

2020 4 750 300 450 20,250 900

2021 5 1,000 400 600 27,000 1,200

2022 6 1,167 467 700 31,500 1,400

2023 7 1,333 533 800 36,000 1,600

2024 8 1,500 600 900 40,500 1,800

2025 9 1,583 633 950 42,750 1,900

2026 10 1,667 667 1000 45,000 2,000

The company has very low market power due to our relatively small size but even on the national

market relatively little power is held by the honey producers unless there is a year with a significant

shortage. Most of the power is held by the packers/buyers to set price. There are a few groups out

there such as the National Honey Council or some honey coops that have slightly more market power.

The National Honey Council was one of the main drivers behind certain legislation discussed below that

imposed a tariff on Chinese honey. There are also come coops of beekeepers that move larger amounts

of honey then a single beekeeper can produce. However, the largest coops tend to also be packers.

Honey prices nationally are on average around $2lb (American Bee Journal.) This number is declining

slightly from year to year due to an influx of cheaper imported internationally produced honey. In fact,

despite an increasing demand from US consumers, American beekeepers only produce about 30% of the

supply (Flotum.) The often-publicized issues with Colony Collapse Disorder and Africanization have led

to a general decline in the number of American producers and bee colonies. Over the last few years, the

US has seen gains in total colony numbers but this has been on the order of 1-2% (Flotum) which is not

enough to offset the need for imports. Due to certain restrictions on imported honeys, most US

suppliers, especially at lower wholesale volumes, have been able to sell everything they bring to the

market. As the volume increases though, more American producers start to have trouble moving all of

their stock as they begin to compete with lower international price points (American Bee Journal).

In the state of Arizona, honey represents a 2.5 million dollar industry. As of the last USDA census, there

were approximately 27,000 colonies. The honey produced in southern Arizona is pretty much the same

from one honey producer to the next. Mesquite is the primary nectar source with wildflowers, palo

verde, and catclaw playing distant seconds within any particular batch of honey. Commercial

beekeeping in southern Arizona is a relatively open competitive space due to an aging population of

beekeepers who are beginning to retire. Additionally, the introduction of the Africanized bee in 1993

saw many beekeepers abandoning honey production, especially in the southern portion of the state.

In beekeeping, there are many barriers to entry. The most significant barriers to entry are the cost of

the equipment and infrastructure needed to produce honey as well as the knowledge required to

successfully manage bees. Some of the needed equipment is hive boxes, processing equipment and

space to process, machinery to move honey filled hive boxes, etc. All of this cost is incurred before the

cost of labor, which becomes essential in the 150-200 hive range. The Company has invested

approximately $100,000 in equipment, labor, and infrastructure to date to enable us to process honey

at our current level. This has been funded through a variety of grants and our own revenues. However,

many beginning beekeepers meet this challenge by taking out loans to purchase the equipment or even

the bees outright. While this results in a larger operation with more potential profit, it can be disastrous

to expand too quickly without the knowledge of bees and beekeeping necessary for good management.

This knowledge takes several years to develop, especially here in Southern Arizona, where weather and

the Africanization of most bee colonies create unique challenges. An example of this is a beekeeper in

Phoenix who purchased what was needed to expand to 170 colonies using debt. He is now in

bankruptcy and selling off the tools, equipment, and hives he purchased. Though the build up costs are

the same, the company has remained in operation due to our slower growth that has forced us to

acquire the knowledge as we waited for the next planned expansion. Additionally, the debt free

business model that we employ has enabled us to keep our costs lower than others who have to ensure

they are earning enough to service the debt they have taken out.

Both nationally and here in Tucson, small local beekeepers are finding success in differentiating their

products from the honey available in most grocery stores. Local, raw honey commands a premium

wholesale and retail price that is significantly higher than the national average. It is not uncommon for

local producers to charge $5lb while the national average for wholesale is closer to $2lb (American Bee

Journal.) The company has been able to capitalize on the demand for local, raw, and naturally produced

honey to take advantage of the higher price point. In addition, small local producers that have remained

in the marketplace for more than a few years are relatively rare in Tucson. The retailers that have been

purchasing our product do not hesitate to pay a higher wholesale price as they can be certain that we

provide a quality product, and that we have a staying power within the community that relatively few

have been able to match. We attribute much of this to the debt free model discussed previously. It has

forced us to grow slowly but it has also allowed us to survive the normal challenges in agriculture such

as weather and livestock death (like the recent pesticide overspray of five of our colonies) by keeping

our costs lower.

As in all agriculture, there is quite a bit of government regulation surrounding honey production. To sell

across state lines certain licensing is required. There is no sales tax assessed in Arizona for a beekeeping

operation but we are subject to minimum wage laws. At this time, we hire contract labor seasonally and

have used volunteer labor through such organizations as WWOOF. This is not the most efficient use of

labor but it has enabled us to avoid some of the higher costs associated with true employees after the

passage of Proposition 206 which raised the minimum wage for Arizona. Outside of Proposition 206,

there is also a shortage of knowledgeable reliable labor in Southern Arizona beekeeping. Especially in

the summer, because beekeeping is hot and physically demanding work. It has been a challenge for our

business as well as others locally to find labor. Profit margins are not typically high enough to pay much

more than the minimum wage which adds to the challenge for many small operations. As we grow, we

are planning for labor that costs more than the minimum wage. The very low supply of able workers will

demand it. Nationally, this is not as much of an issue, at least in the states that are the top honey

producers (Flotum.)

As mentioned previously, the national market for honey realizes lower price points due to an influx of

cheaper international honey. In 2001, the US Department of Commerce placed a 221% duty on

imported honey from China after it was determined that the imported honey was being offered at prices

that were far less than a fair market value (U.S. Immigration and Customs Enforcement.) In addition to

the low price point, American beekeepers have serious concerns about the quality of honey coming in

from China (Woodruff.) Antibiotics banned in the US are still used to treat Chinese hives in large

numbers. Additionally, Chinese honey is often stored in lead lined 55 gallon drums. The lead leaches

into the honey, providing a risk to the consumer. Chinese exporters often ship honey through other

countries such as India, Vietnam and Argentina in order to evade the extremely high duty placed on

their goods. Chinese producers have also perfected an ultrafiltration technique that removes the pollen

from their honey thus making it next to impossible to identify as originating from China. The USDA and

FDA do not consider ultrafiltered honey to be honey. It is instead a sweetener. However, there are

currently no requirements to test all foreign imports or even domestically produced honey for purity.

Some estimates have as much as 1/3 of all honey available in stores as originating from China due to the

factors described above (Schneider).

In conclusion, the honey market has some interesting factors that influence pricing. Despite the

environmental impacts of modern agriculture on honey bees and the influx of cheap potentially

substandard honey from China demand is still increasing, thus keeping the price at a high enough level

to ensure profits for American beekeepers. Shortages in supply due to colony collapse, environmental

factors, and weather that drive prices higher are offset by a thriving black market for imported honey

from China. This serves to keep the wholesale price at large volumes lower then it would be without the

additional international supply.

Works Cited

• American Bee Journal 2016. U.S. Honey Crops and Markets, American Bee Journal, February 2016, pages 137 -139.

• Flotum, Kim. (2016). US Honey Industry Report 2016. BeeCulture, 2016. http://www.beeculture.com/u-s-

honey-industry-report-2016/

• United States Department of Agriculture. (2012). Colonies of bees-Inventories and honey sales. Retrieved

from

https://www.agcensus.usda.gov/Publications/2012/Full_Report/Volume_1,_Chapter_2_County_Level/Ari zona/st04_2_020_021.pdf

• United States Department of Agriculture. (2016). Number of Colonies, Yield, Production, Stocks, Price, and

Value – States and United States: 2016. Retrieved from

http://usda.mannlib.cornell.edu/usda/current/Hone/Hone-03-22-2017.pdf.

• United States Department of Agriculture. (2017) National Honey Report. (November 30, 2017) Retrieved

from https://www.ams.usda.gov/mnreports/fvmhoney.pdf

• U.S. Immigration and Customs Enforcement News release. (June 30, 2016.) Retrieved from https://www.ice.gov/news/releases/hsi-chicago-seizes-nearly-60-tons-honey-illegally-imported-china-0

• Woodruff, Mandi (2012) One Third Of America's Honey May Be A Dangerous And Illegal Import From

China. Business Insider. Retrieved from http://www.businessinsider.com/one-third-of-honey-in-the-us-

may-be-an-illegal-and-dangerous-import-from-china-2012-2.

• Schneider, Andrew (2011). Tests show most store honey isn’t honey. Food Safety News November 7, 2011. Retrieved from http://www.foodsafetynews.com/2011/11/tests-show-most-store-honey-isnt-

honey/#.Wi2GxkqnFPY