Firm efficiency and returns-to-scale in the honey bee pollination services industry

Authors: RITTEN, CHIAN - University Of Wyoming; Peck, Dannele; EHMKE, MARIAH - University Of Wyoming; PATALE, M - Kansas State University

Submitted to: Journal of Economic Entomology
Publication Type: Peer Reviewed Journal
Publication Acceptance Date: 3/7/2018
Publication Date: 4/3/2018
Citation: Ritten, C.J., Peck, D.E., Ehmke, M., Patale, M.A. 2018. Firm efficiency and returns-to-scale in the honey bee pollination services industry. Journal of Economic Entomology. doi:10.1093/jee/toy075.
DOI: https://doi.org/10.1093/jee/toy075

Interpretive Summary: Pollination services are vital to the production of many cash crops in the U.S. agricultural and food sectors. Pollination services in the U.S. are valued at $16 billion annually, with 75 percent provided by managed honeybees. Yet, the number of managed honeybee colonies has decreased from an historic high of 5 million in the 1940s to a low of 2.6 million in 2015. Research on honeybee colony loss has focused on anthropogenic, environmental, agrochemical, and biological causes. Yet economics may also play a role in the decline of honeybee colonies. To better understand the potential economic causes of declining honeybee stocks, we measure the technical efficiency of beekeepers in the northern Rocky Mountain region who provide pollination services. The existence of production inefficiencies or diseconomies of scale may discourage beekeepers from expanding their pollination services or entering the market. Our study results show no relationship between technical efficiency and an apiary’s size. However, larger operations (more than 1000 colonies) generally experience decreasing returns to scale, which may cause them to decrease their colony stock to minimize long-run average cost. Technical efficiency of beekeepers in this region is correlated with off-farm employment and location. Wyoming apiaries in our survey are more technically efficient than those from either Montana or Utah. This is because Wyoming beekeepers, on average, produce more honey per colony and more colonies under almond pollination contracts per apiary. The results of our study suggest that economic factors—especially diseconomies of scale–may be encouraging beekeepers with more than 1000 colonies to decrease their scale of operation. The observed long-term decrease in honeybee colonies in the U.S. might therefore be due, in part, to beekeepers moving towards more optimal scales of production. At the same time, beekeepers with fewer than 80 colonies are facing increasing returns to scale, which should lead to expansion of their operation. Current and future policies aimed at increasing the supply of honeybee colonies should therefore be aware that beekeepers trying to expand their apiaries may eventually encounter decreasing returns to scale. The smallest of commercial apiaries, however, may experience increasing returns to scale, signaling an opportunity to gain honeybee colonies through carefully planned and financed growth.

Technical Abstract: Honeybees are well-known for producing honey, but they also provide critical ecosystem services through pollination (Goulson, 2003; Potts et al., 2010; Ványi et al., 2012). This pollination service is vital to the production of many cash crops, on which the U.S. agricultural sector depends (Aizen and Harder 2009; Bond et al., 2014; Hein, 2009; Southwick and Southwick, 1992). Pollination services in the U.S. are valued at $16 billion annually, with 75 percent attributable to managed honeybees (Calderone 2012). Pollination contracts have actually displaced honey production as the main revenue source for the honeybee industry in the last half-century (Suryanarayanan, 2012). Yet, the number of managed honeybee colonies has decreased from an historic high of 5 million in the 1940s (USDA-ARS, 2015) to an historic low of 2.59 million in 2015 (USDA, 2016). As the acreage of pollination-dependent crops increases, continued declines in honeybee colonies may have lasting effects on the cropping sector, its economic bottom-line, and the broader health of agro-ecosystems (vanEngelsdrop et al., 2009). Research on honeybee colony loss has focused primarily on anthropogenic, environmental, agrochemical, and biological drivers (e.g., Potts et al., 2010; Vanbergen, 2013; Smith et al., 2013). Yet economic factors also play a role in the decline of honeybee colonies (Smith et al., 2013). Beekeepers who experience colony loss often replenish them by purchasing packaged bees or splitting existing colonies. This loss can be very costly, leading some beekeepers to not replace lost colonies, or even to exit the industry entirely (vanEngelsdorp and Meixner, 2010). From 1982 to 2002, the number of U.S. farms reporting apiculture activity decreased by nearly 70%. Among farms that maintained honeybee colonies, their colony inventory declined over the same period, particularly for those with fewer than 5,000 colonies (Daberkow et al., 2009). In 2012, there were 115,000 to 125,000 beekeepers in North America, 94% of which were hobbyists (fewer than 25 colonies) who did not offer pollination services to cultivated crops (National Honey Board, 2015; National Research Council, 2007). Only 1% of beekeepers are considered commercial, defined as having 300 to 60,000 colonies (National Research Council, 2007). Many of these beekeepers migrate (i.e., truck their colonies between agricultural regions) to pollinate crops throughout the U.S. (Bond et al., 2014; Horn, 2006; Jabr, 2013; Mairson, 1993). California’s almond industry, for example, employs 60 to 75 percent of U.S. commercial hives during the spring bloom, two-thirds of which come from out-of-state (Souza, 2011; Project Apis m., 2012). Almond producers, and U.S. agricultural industry as a whole, rely heavily on a relatively small number of beekeepers to provide critical pollination services. Therefore, further declines in the number of honeybee colonies could have far-reaching effects on U.S. food production. Despite the potential consequences of dwindling honeybee stocks, in-depth analyses of the pollination services market are largely missing from the literature (Rucker et al., 2012). Enhanced economic understanding of this market could benefit existing and future beekeepers (Burgett, 2011). More specifically, a better understanding of the economic behavior and performance of beekeepers is essential to explaining and forecasting the scarce supply of colonies for pollination services (Champetier, 2010). This is especially true in the northern Rocky Mountain region, where economic information on the beekeeping industry is lacking compared to information available for California and the Pacific Northwest, where ongoing surveys provide critical market insights (Caron et al., 2012; http://www.californiastatebeekeepers.com/swarms-info.html). Given that commercial beekeepers in the northern Rocky Mountain region h