Why rising honey prices may increase kiwifruit orchard costs

This week, my ECONS102 class covered rational behaviour, one aspect of which is the cost-benefit principle: that when evaluating mutually exclusive alternatives, a rational decision-maker will choose the alternative that offers the greatest net benefit (the greatest difference between benefits and costs). So, it was interesting to see a good example of this in The New Zealand Herald just last month:

There’s growing competition for beehives as honey prices sweeten again and kiwifruit orchards continue to grow...

[Beekeeper Liam Gavin] said renewed confidence in honey production is seeing some pivot away from pollination.

“I sort of describe it as the tug of war between honey and pollination.

“Both are needing more beehives. So which one, where are they going to go? And that’ll all be down to, like, region-specific [stuff], and what people like to do in terms of how they beekeep.”...

With honey prices coming back up, [New Zealand Kiwifruit Growers Incorporated chief executive Colin] Bond expected more beekeepers would prioritise honey over pollination, which would create a challenge for kiwifruit growers.

Beekeepers can position their hives primarily to generate income from honey production, or primarily to generate income by providing pollination services. Thus, for a particular hive at a particular time, honey production and paid pollination are mutually exclusive alternatives.

A rational beekeeper, applying the cost-benefit principle, would compare the expected net benefit from using their hives for pollination with the expected net benefit from using them for honey production. That comparison would include pollination fees, expected honey revenue, transport and feeding costs, risks to hive health, and other relevant costs and benefits. As honey prices increase, the opportunity cost of committing hives to pollination increases. Ceteris paribus (holding all else constant), as honey prices increase fewer hives will be offered for pollination.

So, if kiwifruit growers (and other farm and orchard businesses that depend on pollination) want to secure enough hives for pollination, they will probably need to offer higher pollination fees. That would raise their pollination costs and, consequently, their overall orchard operating costs.