Fall 2011Fall 2011

A Vital Linkin the Food Chain

5 | Nor thwest Farm Credit Ser vices

A Vital Linkin the Food Chain

Special thanks to Hannah Nordhaus forcontributing to this article. Hannah is author of

The Beekeepers Lament, which covers the historyof the Miller family’s bee business and the last

few difficult years of beekeeping.

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We all play a vital role in the value chain of agriculture. Growers, processors, suppliers and lenders linked together in tandem to feed the world. Yet, one tiny player may have the most significant impact of all. Every third bite of the American diet is pollinated, says the USDA. Farmers depend on honey bees to pollinate 95 different crops – from fruits, nuts and vegetables to clover and alfalfa – worth close to $15 billion annually. It’s sobering to think how much of the food supply relies on these tiny, migratory insects and the migratory beekeepers who manage them.

The Miller family has been raising bees and producing honey for more than 117 years. Nephi Ephraim Miller was the first commercial operator to ship bees on a large scale in the 1920s and produce a million-pound honey crop. Today his great-grandsons, John and Jay Miller, continue the family legacy. They’re facing new challenges and opportunities with the success of agriculture riding on their shoulders.

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Some thirty years ago, U.S. beekeepers managed close to 4 million colonies. Today, less than 2.5 million remain. The nation’s bee herd is experiencing devastating losses, most recently from a voracious parasite called the varroa mite. Commercial beekeepers spend unprecedented dollars to keep their bees alive, fight the varroa mite and improve the genetic health of their herd. Demand for pollination services, particularly from California almond growers, has skyrocketed while honey prices often hover around break even. Add to this complexity, weather, crop health, labor, transportation, urban encroachment, and thousands of bee stings. Yet, John and Jay Miller continue to adapt and innovate in different ways, with their father Neil rooting them on.

Neil Miller, 82, started working with bees at a young age. His grandfather, NE Miller, was a pioneer in the beekeeping industry and known as the “father of migratory beekeeping.” NE was the first to ship bees on a large scale, the first to buy a railcar-load of honey jugs, and the first to ship large supplies of honey to eastern markets. According to early family writings, NE Miller’s goal was to “accomplish in the beekeeping industry what Henry Ford had done in the auto industry: namely to put honey in the price range so people living in large cities and in thickly populated sections could afford to use it as a regular food.”

“My grandfather had a plan,” explains Neil. “If a man could get enough money to feed his family until the August honey harvest, and if he had a truck to visit the hives, my grandfather would provide the bees on a crop share basis. Theoretically, a man could harvest his honey, pay his bills and have a successful

operation. That’s how the business was built. NE helped 44 people get into beekeeping on leases and 28 have been outstandingly successful to this day.” Pollination, honey and packingOriginally, Millers Honey employed a three-prong business strategy. They raised the bees, produced the honey and bottled it themselves. When the retail grocery industry began to consolidate in the 1990s, and large chain-store operators pulled more clout, margins on the bottling side diminished. The Millers quickly adapted strategies and formed partnerships with a select group of honey packers. Many of these relationships have spanned more than 50 years.

On the pollination side of the business, major changes started taking place in the 1960s and 70s. According to Neil, new crop inputs and chemicals were killing bees in large numbers. The Millers had no choice but to repopulate their hives with new queens, an expensive and precarious process known as re-queening.

The queen bee is the only creature in the hive capable of laying both male and female eggs. At her reproductive peak, a queen can lay as many as 3,000 eggs per day. She lives one to five years, while the average worker bee lives just one to four months. The queen is single-handedly responsible for populating the hive with new workers, an amazing natural strategy for survival.

In the re-queening process, the Millers divide one colony into two or three new nucleus or “nuc” hives. An unhatched queen (the nuc) must be placed in the hives just hours before she hatches. New frames of honey comb, pollen and brood are introduced, along with empty frames to house the budding hive. There is little margin for error in the queening process. Date, time and temperatures must be precise to give these baby queens a chance for survival and ultimately, a productive start to the new hive.

Half the hives in the United States now go through twice as many queens as they used to. On a commercial scale, it’s hard to

When it comes to making decisions, Neil Miller says he adheres to a simple lifeprinciple, “Do what you should do, when you should do it.”

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imagine the logistics and costs for operations like the Millers. An unhatched pupae queen cell costs about four dollars. Collectively, John and Jay manage some 15,000 hives, or more than half a billion bees.

“Our dad needed five to seven percent new queens per year,” says Jay. “He retired in 1996. Today, with the varroa mite and other challenges, we need between 30 and 40 percent new queens. It’s probably one of the worst economic models out there. In this environment, queens don’t last as long as they used to. As beekeepers we have to build these costs into the overall equation.”

Driven to scale by the almonds The emergence of the California almond industry has driven once-in-a-century changes in the beekeeping industry. Like no other region in the world, California’s Central Valley enjoys a perfect trifecta of soil, climate and water needed to grow the profitable nut. California dominates the world market for almond production, growing more than 80 percent of the global supply. Almonds are California’s leading export, with more than twice the revenues of the state’s wine exports. Almond growers typically break even at $1 a pound wholesale. In early 2010 almonds sold for double that price, grossing California growers close to $1.9 billion.

Almond growers need bees, and lots of them. Trees pollinated by wind and other natural pollinators will produce about 40

pounds of nuts per acre. Bring in the honey bees and the average yield is closer to 2,400 pounds per acre. In February of each year, more than 740,000 acres of almond trees bloom simultaneously in the Central Valley. Planting densities vary with soil and water conditions – from 95 to 135 trees per acre producing up to half a million flowers to the acre.

To support pollination demand, 1.5 million hives, nearly all of the transportable colonies in the United States, are imported to California each year. It is the single largest pollination event on earth. John and Jay Miller transport their hives from Idaho, where they’ve been stored in potato sheds through the winter. Competition for healthy hives can be fierce, with pollination prices around $180 per hive. Fortunately, the Millers rely on loyal, long-term relationships they’ve built with the almond growers they serve.

Matching hives to acres is critical. Beekeepers must take into account flight patterns, available water sources, weather, and a variety of other variables. Bees are flying insects after all, not easily controlled or cared for in corrals or fenced-in pastures. Yet, given all the meticulous planning efforts, the discipline and dollars they invest to keep these fragile pollinators alive, the Millers say they’re considered the street walkers of the agricultural industry. “We come in the middle of the night; we wear a veil; customers give us money; and then tell us to get the heck out of there.”

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Massive Bee LossesSome say, “In the summer bees make honey, in the spring they make money.” Yet, there are significant draw backs to the growing demand for almond pollination. Many beekeepers believe their bees are suffering from time spent sharing pathogens with billions of bees each spring in California. In 2005, bees died off in massive numbers with even more wide-spread devastation in 2007. While the causes may be many, public enemy number one is the varroa destructor mite which arrived in the United States in the late 1980s.

This tiny parasitic mite is often compared to a tick which feeds off the bees’ body fluids. Varroa mites can burrow into the unborn brood in the hive, or ride on the back of honey bees, sapping them of their strength and ability to fight off other maladies.

“The varroa mite is a global plague,” says John. “The parasite has laid waste to more hives than any malady to beekeeping since honey bees were introduced to North America. For 25 years we have been struggling to understand how to kill a bug on a bug. Varroa has challenged the best minds in science and industry alike. Sure, there’s great stuff out there and we can kill every varroa mite in the world. But we’d end up killing all the bees and maybe a beekeeper or two in the process. It’s hard to find a fire suppressant when the house you’re inside is burning. Varroa is our new economic reality. Beekeepers are struggling to simply maintain the national herd of beehives, let alone increase hive numbers to meet demand.”

A vital link in the food chain“You have to think like a beekeeper to loan to a beekeeper,” Neil says. Or, as his dad used to say, “You need a two-year banker

in the beekeeping business.” The Millers have been Northwest Farm Credit loan customers for nearly25 years.

Bees are an interesting commodity to finance. Typically, beekeeping doesn’t require a lot of hard assets. What can lenders use for loan collateral – a bunch of bee boxes? What if all the bees inside die? What makes one box of bees any different than another box without bees in it? These questions may seem silly. But the reality from a lending perspective is what if something goes wrong? In the worst case scenario, how does a lender begin to foreclose on billions of honey bees – simply sell them at the next insect auction?

“We focus on management and character,” explains Tony Norton, the Miller’s Northwest FCS Relationship Manager. “We rely on the individuals behind the operation, quality managers who operate with integrity, efficiency, and have the other management skills needed to be successful long term. Neil taught his sons well and John and Jay make it work. They’ve learned to cope with the ups and downs, working hard to keep their bees alive and maintain their pollination contracts.”

“Miller Honey Farms is agriculture,” says John. “We need operating loans. We experience swings in income from year to year. We seek to be a good risk, and a good customer. Numbers matter. We give Northwest Farm Credit accurate financial information and in turn, we receive good counsel, responsive answers and competitive rates. Frankly, I’ve not considered using another lender.”

Jay Miller (left) inspecting hives in Blackfoot, Idaho with Northwest FCS Relationship Manager,

Tony Norton.

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Younger brother Jay agrees, “Northwest Farm Credit offers the programs we need. The Future Payment Fund has been really nice for us. One year, we actually earned more interest than we paid. I’ve also attended several seminars, like their financial analysis workshop. In this business we’re always gathering information. The better information we have, the better decisions we make.”

Sweet, nutritious honeyIt takes almost a million flowering blossoms to produce one pound of honey. At the height of the summer, some 50,000+ bees per hive will collectively travel 55,000 miles and visit two million flowers to produce just 16 oz. of the golden nectar. A hive can collect more than six pounds in a single day. Mindboggling. Yet, this is what these amazing, industrious, bee families were created to do - make honey and lots of it. Bees need to make honey. Beekeepers need to make money. That’s why every summer John and Jay need to find enough blossoms to keep their bees healthy over the winter before spring pollination begins. Finding the land base can be a challenge. Finding the best land is quite

another. Just like the farmers whose fields the bees rely on, beekeepers are always at the mercy of crop conditions and Mother Nature.

We’re all connectedFor four generations, the Millers have been caring for the bees, which populate

the fields, that support farm and ranch families, who feed the world. The food chain is stitched together and as beekeepers will tell you, the thread is pretty thin right now. The percentage of bee losses is unsustainable long term. Finding a solution to combat the varroa plague may be a decade out. But, like generations of Millers before them, John and Jay face the challenges head on. They continue to adapt and innovate in a more resource-constrained environment, protecting these tiny, fragile creatures so vital to agriculture and the U.S. food supply.

Honey Stingernatural energy productsThe United States will produce an estimated 140 million pounds of honey in 2011. This will be the smallest crop ever recorded. Americans consume more than three times this much, or 400 million pounds annually. Honey is a natural sugar and a healthy source of energy. The sticky goodness is known to be an antibacterial agent, used for centuries to treat wounds and burns. Medical studies boast of honey’s immunity-building properties and a host of other health benefits. That’s why John Miller joined a partnership to form Honey Stinger in 2001. The company uses honey as a primary ingredient in 20 different sports nutrition products, including protein bars, energy bars, gels, chews and the Lance Armstrong inspired Stinger Waffle.

According to the February 2011 issue of the Nutrition Business Journal, “Steamboat Springs, Colorado-based Honey Stinger has created such a brand by leveraging two mature markets, honey and nutrition bars. The entire product line uses honey as its energy source, making it a fitting choice for both hardcore athletes and snack-hungry kids. In 2010 Honey Stinger introduced an intriguing new product, the Stinger Waffle, a pocket-size product featuring organic honey sandwiched between two small waffles. The product was modeled after similar snacks carried around by European cyclists. Lance Armstrong, seven-time Tour de France champion was behind the original concept. Armstrong signed on as a partner of Honey Stinger in 2010.”

“I was clearly out of my league back then,” jokes John. “But we pursued the idea of Honey Stinger from 2001 to 2007. Bill Gamber Senior and young Bill Jr. of Dutch Gold Honey are industry experts. They have been packing and selling our honey since the 1950s. The Gambers brought on a super-talented food scientist who formally headed up product development for Hershey foods, Bob Stahl. Like most start-up companies we were starved for cash and undercapitalized. We didn’t have a market presence or a distribution network – lots of things that kill a young company today. But, with young Bill’s perseverance and the key people he’s hired, the company is now successful.”

If we keep losing30 percent of the

national herd each year it’s not

sustainable. Either honey prices will go

sky high or pollination prices will continue

to increase.” – John Miller

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