The Canadian honey industry is widely fragmented and largely undifferentiated. There are approximately 7000 beekeepers and 600,000 colonies in Canada, according to the Canadian Honey Council (2010). Canadian honey is widely exported, to over 30 countries. Annual production is around 28,000 tonnes of honey, of which 16,000 is exported, the export value being $37 million. In recent years, honey production has slipped, but the reputation of Canadian honey abroad remains high (Agriculture Canada, 2008).
This paper will examine the Canadian honey industry, providing not only an overview of the industry and its trends, but also an examination of the industry's key success factors. A complete competitive analysis will be provided, including a Five Forces Analysis and a Value Chain Analysis. There will also be a key success factor (KSF) analysis included in this essay. The paper is intended as an overview of the industry and therefore will not provide any recommendations for producers of honey or those involved in the Canadian honey industry as a whole.
Canadian honey is used for a number of different products. The majority of production goes towards honey for food as well as a number of honey by-products such as beeswax, protein, propolis and royal jelly. In many provinces, there is a small mead (honey wine) industry as well. Quebec is the leading producer of mead, while Alberta honey makers have recently received permission to produce honey wine, providing an additional source of income (Statpub.com, 2010).
Honey production in Canada is aided by climate. Long summers in the Prairies especially provide the conditions for superior honey production. There are ample flowering crops to provide the bees with pollen and as a result Canadian honey makers have double the average honey yield of the world average (Agriculture Canada, 2008). Around half of production remains in Canada, with 86% of exports going to the United States. Germany is the third-largest market, but the majority of Canadian honey remains in North America (Ibid).
The Canadian honey industry is in a state of maturity. Production in 2009 was estimated to be 64.8 million pounds, down from 64.9 million pounds the year before. There were 6728 beekeepers in 2009, down 200 from the year previous, but the number of managed hives increased slightly in 2009. In 2008, the total honey production was valued at $105.2 million, up $20.3 million from 2007. The leading producers of honey come from the Prairie region. Alberta is the nation's leading honey producer, followed by Saskatchewan and Manitoba. In general, however, production is lower that the five-year average from 2004 to 2008, indicating a generally declining economic climate for honey producers in Canada of late (Canadian Honey Council, 2009).
There is little rivalry within the industry. Most producers have an undifferentiated product in either clover or alfalfa honey and these producers will sell their product in bulk to marketing firms that control the retail trade. Individual producers therefore seldom compete directly against one another. The honey industry is cyclical in production, focused mainly on the summer months. Demand, however, is spread throughout the year. The maturity stage of the life cycle reflects that fact that honey is an ancient product, and without recent innovations there is no reason to expect a dramatic uptick in honey demand any time soon. Honey demand is directly related to the population of the area but it could potentially be impacted with a concerted marketing campaign.
Honey is a capital intensive industry. The bees do most of the labor, but the costs of setting up a commercial scale apiary are relatively high. As with most agricultural products, there is a time lag between the investment (at the start of the season) and the payback (end of season). The cost structure in honey is relatively low, as hive construction is not subject to high technology and neither is harvesting equipment. Although there has been some modernization, honey production equipment has not been subject to the same intensity of changes as other agricultural industries.
There are two significant factors influencing the success of the industry. The first is demand, both in the domestic market and in the American market. Annual honey production is loosely correlated with expected demand, as are the prices commanded by Canadian honey producers. The second factor influencing the success of the industry is its seasonality. From year to year, honey production will vary both in terms of quantity and quality. In general, Canadian honey is over very high quality and yields are excellent. However, variability can lead to fluctuations in prices, yields and ultimately in revenues and profits for any given year.
The industry is characterized by highly fragmented production. Most producers are relatively small and many may have other businesses. The honey is then sold to third parties, who are better able to take the honey to market. Retail buyers are generally not sophisticated. Sophisticated buyers are a niche market and their needs are met by specialist honey producers. Buyers have two main needs. One is high quality of honey and the other is a low price. Thus, there is a both price and quality elasticity of demand, although price is the more important factor due to the relative lack of sophistication among general consumers.
Innovation in the industry is limited and the pace of technological change is slow. The basic process has existed for millennia, but even processes like pasteurization have existed for decades or longer. The primary points of innovation at present relate to bee survival. For example, apiaries in Quebec are developing means of avoiding colony loss during the winter, while there are steps being taken to address colony loss from diseases, nutrition issues. Varroa mites in particular represent a threat to bee colonies and these have proven resistant to treatment (Canadian Honey Council, 2010).
In general, there is little product differentiation. For the majority of honey producers, the market can be characterized as a state of perfect competition, where there is almost no differentiation. Only in the premium segment of the market is there strong differentiation between honey products, typically based on the type of flowers used in the production. As a result of the general lack of differentiation, most producers do not market their product directly to the consumer. This helps the producers to take advantage of economies of scale in marketing. There are few economies of scale in production. Hive production is related to not only the size of the hive but the size of the flower area that the hive covers. In general, larger areas require more colonies.
Key Success Factors
For the honey industry overall, marketing is the most significant key success factor. Although there is little in the way of differentiation in the honey market, Canadian honey does have a good reputation for quality. There are a handful of strong brand names in honey, but honey is not a product dominated by branding. For the Canadian honey industry, the key marketing success factors are reputation and distribution. The reputation of Canadian honey helps to open markets overseas. Distribution is critical for bringing Canadian honey to a wider audience. While domestic honey is ubiquitous in Canada, distribution in the U.S. is critical to expanding market share south of the border. The more distribution channels that can be accessed, the greater the sales potential of Canadian honey in the United States.
On the production side, one key success factor for the Canadian honey industry is its yield. The industry has double the global average yield, and this allows Canada's honey producers to produce at a lower average cost per pound than many foreign producers. The greater the yield that Canadian honey can generate, the most successful the firms in the Canadian honey industry will be. Another production side success factor is the ability to keep Canada's apiaries free of disease, parasites, African bees or any other element that would undermine the profitability of the apiary. Colony loss causes financial harm to the industry, so it is to the industry's benefit to find ways to avoid colony loss. Doing so will increase industry profitability and ensure steady supply to meet market demand in the years going forward.
Michael Porter's Five Forces Model gauges the attractiveness of an industry based on the pricing power of the players in the industry. The five forces are supplier power, buyer power, threat of substitutes, barriers to entry and intensity of rivalry (QuickMBA, 2010). The Canadian honey industry is only moderately attractive based on the Five Forces model. Supplier power is moderate. In general, honey producers are supplied by equipment manufacturers, bee breeders and flower producers. The latter group has a symbiotic relationship with honey producers because they need their crops to be pollinated, and often they will pay the bee keeper for this. Overall, most of these bodies will be larger than the average honey producer, but they have limited buying power because of the fact that their products are low technology and a competitive marketplace exists for those products.…