Local farmer pinned down by revamped milk prices

Longtime Hawaii dairy farmer Ed Boteilho Jr. was bracing Wednesday for a potentially bad start to the New Year.

On Monday the state Board of Agriculture voted to relax price regulations for wholesale milk.

Meadow Gold, the state’s only milk processor, had told state officials it would quit buying milk from local dairies on Thursday if it had to keep paying a state-imposed minimum price.

Boteilho has refused to offer his milk for less than the minimum price calculated under Department of Agriculture rules.

Boteilho, the operator of Cloverleaf Dairy on Hawaii island, said his business will fail if he sells for less than the minimum, which is tied to farm operating costs and calculated to provide a fair return.

"I cannot reduce my costs," Boteilho said. "I’m fighting for my life."

It remains to be seen if Meadow Gold, which is owned by Texas-based Dean Foods, follows through on its stated intention to not buy Hawaii milk unless it could pay less than the set minimum.

The minimum price was established under a 50-year-old rule that sets what processors must pay but doesn’t compel them to purchase local milk. Meadow Gold can buy milk cheaper from the mainland.

The only other major local milk producer, Big Island Dairy LLC, wanted to charge less than the state minimum and now is able to do so.

Boteilho, who has been a local dairyman since the early 1960s, was unsure if Meadow Gold will keep buying his milk and hasn’t discussed it with anyone from the company.

"I have been a 51-year honorable producer for them," he said.

Jamaison Schuler, a Dean Foods spokesman, said in an email Wednesday that he cannot speculate about milk purchasing plans.

One potential resolution to the situation could be a sale of Cloverleaf to a company that might be able to reduce production costs and sell milk for a price that is below the state minimum but still benefits the producer and processor.

Ulupono Initiative, a local investment firm funded by eBay founder Pierre Omidyar, recently agreed to explore buying Boteilho’s dairy in a deal that may or may not come to fruition.

"We’re in the very early stages of due diligence," said Kyle Datta, general partner of Ulupono. Datta said it is too early for the company to know whether it could modify Cloverleaf operations and produce milk for sale at a price the works for Ulupono and Meadow Gold.

However, Datta said a dairy farm that Ulupono is working to establish on Kauai is designed to start with 699 cows — about the same number that Cloverleaf has — and sell milk at a price that is competitive with mainland milk.

Meadow Gold’s complaint is that the local milk it processes and sells in stores isn’t competitive with milk from the mainland because of what it regards as an imposed subsidy paid to local farmers. Meadow Gold imports mainland milk, but so do about two dozen other distributors that have been eroding Meadow Gold’s market share.

"The milk industry in Hawaii requires constant investment to compete with mainland products," Schuler explained in an email Monday. "Supporting diversified agriculture within the state will continue to be our mission while also recognizing our responsibility to provide consumers with competitive products."

Mainland milk accounts for 80 percent of the milk consumed in Hawaii. Until 1985, 100 percent of Hawaii’s milk supply came from local farms. Increasing costs for feed and pressure from real estate development along with other issues have forced most Hawaii dairies out of business.

Eight Hawaii dairy farms have closed since 1999. The last Oahu dairy farm, Pacific Dairy in Waianae, ceased operating in 2008.

Boteilho said he elected to offer Cloverleaf for sale more than a month ago because his mother, the company’s principal share­holder, is 88 years old and wants to make some estate planning decisions. He said contention over milk prices did not influence the decision to find a buyer.

A push to let farmers sell milk for less than the minimum price derived from negotiations between Big Island Dairy and Meadow Gold about a year ago, according to Board of Agriculture Chairman Scott Enright.

Enright said Big Island Dairy had a plan to double its milk production but Meadow Gold wouldn’t agree to buy more milk at the state-imposed minimum. So Big Island Dairy petitioned the state to allow any milk producer to seek a waiver from the minimum price.

The board researched and discussed the issue for more than six months but took no action. Then an emergency meeting was held Monday and the waiver provision was approved 7-0 after Meadow Gold expressed its plan to quit buying local milk as of Thursday unless there was a way for it to pay less for local milk.

Jerry Ornellas, a board member representing Kauai who was once in the dairy business, said before the vote that he had concerns about the waiver option and the fact that Meadow Gold appeared to be the genesis of the proposal but never testified at any meetings.

"I don’t see a way out of this," he told Boteilho before the vote. "If they refuse to buy your milk, what’s going to happen?"