Chapter 1: How do beekeepers make a living?
Last week, we made an episode about the bourbon industry. One thing we didn't get into is the fact that the consumption of alcohol generates what an economist would call negative externalities. This just means that something you do can impose a negative cost on me. Like if you drink too much bourbon and then you get in your car and drive, you raise the risk for me and everybody else on the road.
Economists have many examples of negative externalities, but positive externalities don't get as much airtime, which is a shame because there are some good ones like education, vaccination, also honeybees. I'm serious. But when it comes to honeybees, and especially the making of honey, all is not well.
Honey is more popular than ever, but the industry is very lightly regulated, which makes it vulnerable to fraud.
Honey has for years been one of the top three most frauded foods in the world. It's milk, olive oil, and honey.
So what if the honey in your cupboard is not actually honey? Do you care? You like the taste. Do you care if it's not authentic? It turns out that honey fraud has been around for centuries.
People in Lisbon were fraudulently exporting Lisbon honey, but calling it Porto honey.
And what is happening with the bees? The adult bees actually disappeared. There weren't dead bees lying around the hive, and nobody knew what happened to them.
If only we had an economist handy to help us understand the positive externalities of bees. Oh, wait, we do. Today on Freakonomics Radio, my Freakonomics friend and co-author Steve Levitt is back in the host's chair to explain the sticky economics of the honeybee industry. And that starts now.
This is Freakonomics Radio, the podcast that explores the hidden side of everything with your guest host, Steve Levitt. Hi, I'm Steve Levitt.
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Chapter 2: What is the impact of honey fraud on the industry?
How many bee stings do you get a day? Oh, I get stung about every day. You said you had 18,000 hives, is that right? Correct.
How many bees is that total?
In the summer, the average hive could be 40 to 50 to even 60,000 bees. But in the winter, it goes down to 30, 20, even the smaller hives, 10,000 bees per hive.
By my math, that works out to Hyatt caring for roughly a billion bees during a busy summer. Those bees don't just make honey. Like many bees in large commercial hives, they have a second critical job. They pollinate crops on big commercial farms. During pollination season, Chris Hyatt has his hives loaded into semi-trucks and driven all across the United States.
We pollinate almonds in California, apples in Washington, and we do a little bit of other things like cherries and plums and apricots and blueberries and a little bit of kiwi. And then most of our honey production is in North Dakota. You got to look at it like livestock when you see those cattle trailers full of cattle. Same thing.
We throw about 400 to 500 hives on a flatbed semi, and we go four pallets tall, and every pallet has usually four hives on a pallet, and the forklift is loading it. And when you have a dead out, then you have a spare spot on the pallet. You got to move and complete the pallets. So that's old fashioned work. It always makes the news when a semi tips over.
Like last week, there was one in San Antonio, Texas that flipped over on the freeway. And they always say 450 highs, which is actually so many million bees in it just for the scare factor and stuff. And roughly how many pounds of honey are you able to bring to market with all those bees? That's all weather dependent. Some years you can do 50 pounds, and that's kind of a below average year.
Some years 80. On a good year, we've done 100, 150. My dad, way back when, used to make 250, 300 pound average in Alberta in the 70s before he started coming to North Dakota.
So 80 per hive, and you've got 18,000 hives. So you're talking about almost 1.5 million pounds of honey?
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Chapter 3: What caused the sudden disappearance of billions of bees?
If we're above it, we had a pretty good year.
You said your dad used to be able to get 200 and something pounds of honey out of a hive in Alberta. Yeah. What has changed? I would have thought the opposite would be true, right? With technology, we've learned a lot more about keeping bees healthy. You'd think that the yield per hive should have doubled or tripled. But what you just described is that it's maybe half of what it used to be.
Why is that?
Well, the habitat has changed. There's a lot less blossoms, a lot less bloom. There's a lot of mom-and-pop dairies that went out of business. There's less alfalfa than there used to be. And there's less grassland where sometimes you can get sweet clover to grow just wild. So that's hurt. And then the whole varroa mite problem. What does the mite do in the hive?
So the varroa mite, it's very tiny. It's like half of a grain of rice. And they are feeding on the fat bodies of these honeybees. And them constantly feeding is weakening these honeybees so their longevity is less. They're not living 40 days, 45 days. And then as they are biting and sucking, they are passing viruses. And the viruses are building up and taking out these hives.
You know, my dad in the 60s has said there was no varroa mite. Now we're treating four, five, six times a year. And the viruses are mutated and becoming worse and worse. So that's why we had a record high loss last year for the nation. Along with habitat and pesticides, some of the DDT and the organophosphates are gone, but there are a lot of the neonics and they persist longer, right?
All these things are death by a thousand cuts. So these bees are not as strong as they used to be in the 80s. We rarely get swarms now because the hives are not as strong as they used to be.
Interestingly, the gap between the retail price and what's paid to the farmer, that's really grown a lot over time. Why do you think that is the case?
I feel like just the cheap imports have taken the spot. of the lack of production that we can't keep up with. It's all about price point. We do know a lot of the honey market goes into the industrial grade. It's awesome that so many people want it in their cereal and their smoothies and Robitussin cough medicine and honey hams and everything. But most of the industrial market is cheap imports.
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Chapter 4: How does the almond industry affect beekeeping?
has some fraud issues. The New York Attorney General's Office years ago identified fish as a product that's most susceptible to fraud. We have fun in my class at UCLA. We oftentimes do olive oil test tastings. We talk about whether we care. whether our sushi bar is mixing up species. These are all interesting questions because fraud is not necessarily a safety issue.
Can be, but it's not necessarily.
To understand what's happening in honey, it helps to look at another industry that's been fighting the same battle for decades.
I consulted with the Italian government when they were trying to crack down on their olive oil fraud. Olive oil is a target because, one, it's high value. Two, it's relatively easy to adulterate or mislabel. Three, it's difficult for consumers and even regulators to verify without specialized testing. Those are the three reasons. High value, easy to adulterate, difficult to verify.
What do you adulterate olive oil with? You can blend cheaper refined seed oils like sunflower, soybean, palm with small amounts of real olive oil. And then you sell it as extra virgin or 100% olive oil. You can manipulate the color, the flavor.
How do you do that? What do they add for color?
Yeah, I have to be careful because I get beyond my expertise, which is in law. I assume you know everything. I want my children to think that too, so let's not spoil that misperception. A lot of it is diluting and blending, and then you have to sometimes patch up the problems you create by blending, and that's when you manipulate colors and flavors differently.
with dyes and so forth to try to get the genuine olive oil color. There was a popular brand of olive oil in the store, and I was having lunch with a prospective student from my class. She told me she was an olive oil connoisseur, and she loved olive oil. That's why she wanted to take the class. I asked her what her favorite brand was, and she says, oh, I've tested all of them.
This is the particular brand I'm most convinced is the best olive oil. It just so happened that I knew that that olive oil was like the worst brand on the market. And I didn't have the heart to tell her. Never tell a connoisseur that they have bad taste. There's a trick, though, for those people out there who want desperate to know the chances their olive oil may be adulterated.
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Chapter 5: How do pollination services contribute to the economy?
And that will lead to the conversation, OK, it's not a safety problem. It's a fraud problem. But do you care? You like the taste. Do you care if it's not authentic?
The federal government does sometimes weigh in on the authenticity question through what's called a standard of identity.
Standard of identity in one word, it's a recipe. It helps identify what a product is. When we get into really complicated products, that becomes a complicated question. Standards of identity are really important because that's the benchmark by which we decide whether a food is authentic or not.
They became very popular when we had the very first Food Act, the 1906 Pure Food and Drug Act, and then they became even more popular with the 1938 Federal Food and Drug and Cosmetic Act. All of these acts were passed in response to food safety problems, or more broadly, food adulteration problems, which included both fraud and safety.
So you had standards of identity being populated by the FDA right and left on food.
So say something like peanut butter. Peanut butter, there is a standard of identity. I don't know what it is, but if you don't mean it, you can't call your thing peanut butter.
In fact, peanut butter killed the making of standards. How so? Al Gore, Vice President, Bill Clinton, was given the assignment to modernize government, to clean up bureaucracies, cut waste. And he encountered this long saga of the making of a peanut butter standard, which led for over a decade, years and years of arguing about what is peanut butter. You had congressional hearings on this.
The FDA was tied up in the knots over science. The question was, how many peanuts should it be in peanut butter? And that was a really important economic question that had a lot of cost implications. It dragged on for years and years, and tons of money was spent. And Al Gore just wrote a scathing report about these peanut butter standards that were wasting time and money.
It really caught a lot of attention, and the FDA literally at that point stopped making standards because it just wasn't worth the effort.
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Chapter 6: What challenges do modern beekeepers face?
So this positive flow of externalities goes both ways. And that leads to this unambiguous theoretical conclusion that we should subsidize the production of apples and the keeping of bees.
OK, so let's go to negative externalities because we have a lot of those in the world and economists think we understand those. So examples would be the pollution from factories, the stench from pig farms, traffic jams on the roads because too many people are trying to drive to work, secondhand smoke. It goes on and on and on. OK.
So when there is a negative externality associated with an activity, then economists worry that the free market provides too much of that activity, right? The pig farmer, the polluting factory, they aren't responsible for the full damages of their pollution. And they don't factor those costs into their decisions about how much to produce. And so they make too much.
So negative externalities are a problem. How do economists try to fix that problem?
Well, going back even earlier than Mead, famous British economist A.C. Pagu said you tax those activities that generate negative externalities. If you have too much smoke coming out of a factory, the factory owner is senseless to the harm that the factory is doing, so you tax them per unit of output or per unit of smoke. That would be a pretty standard economic prescription for the problem.
And that's a way of internalizing the externality, making the producer take that into account. So it seems logical if a negative externality leads to market failure where there's too much production and then you tax it. Well, then with a positive externality, it would stand to reason that with the free market, there are too few bees around and maybe too few apple orchards.
And that's what James Mead conjectured. But then in 1973, Stephen Chung gathered some data And it didn't seem to be true.
The story about reciprocal positive externalities really rests on these two parties not being able to influence each other, not being able to transact with each other, and maybe not even being aware of each other. What Chung found was that if you go to rural Washington state towns and open the yellow pages of the phone book, you would find advertisements for pollination services from beekeepers.
So not only did apple growers and other farmers know about beekeepers in the area, they could call them up and pay them a certain amount per colony to come over and pollinate their crops. So I would say this was Chung's aha moment was there were transactions going on. So at least to him, there was a prima facie case that some of this positive externality was being internalized.
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