Hawaii’s largest dairy is seeking state help to develop a $10 million milk processing plant after the only local processor dramatically cut what it pays Hawaii’s last two dairy farms for their milk last year.
Three bills at the Legislature backed by the administration of Gov. David Ige seek to allow Big Island Dairy LLC to finance a milk processing plant by selling bonds under the state’s authority.
Big Island Dairy suggested it needs the plant to stay in business after Meadow Gold, the only milk processor in Hawaii, forced the last two dairies in the state to accept dramatically lower payments for raw wholesale milk that Meadow Gold processes and packages for retail sale.
Meadow Gold contended last year that it would quit buying local milk unless the price it paid was more competitive with the price other companies pay to import milk from the mainland. State law long had set a minimum wholesale price for local milk, but Meadow Gold convinced the state Board of Agriculture to allow waivers to the minimum that were enacted last year.
Now Big Island Dairy is looking for a way to cut out Meadow Gold.
The special purpose revenue bonds would provide the dairy with a lower cost of financing compared with the commercial lending market. The dairy alone would be obligated to repay the bonds. The state wouldn’t.
Scott Enright, Board of Agriculture chairman, said the requested bond financing is in the public interest.
“It is in the best interest of the people of Hawaii that the state maintains its own local food production,” he said in written testimony. “The local milk industry is of significant importance to the food sustainability of the state of Hawaii and must be safeguarded and protected in the public interest.”
Enright noted that Big Island Dairy and its only competitor — Cloverleaf Dairy, also on the Big Island — are “at the mercy of” one milk processor that doesn’t have to buy local milk.
“The processor can and does purchase milk from California at California prices,” Enright said in his testimony. “This situation places an undue burden on the local producer where they have to accept the price of milk from the processor or risk dumping their unsold milk, neither of which is economically sound or serves the best interest of the dairy industry in Hawaii.”
Derek Whitesides, a Big Island Dairy principal, said in written testimony that the move by Meadow Gold upset a plan his family had set in motion to build a new milking facility and double production of the dairy after his family bought the farm in 2011.
“We were to be paid at a parity price to mainland milk being imported,” he said. “With no other processor to sell milk to, we felt no choice but to oblige their request. A parity price with (mainland milk) has not been feasible for the many dairies that were in Hawaii before us, and is not feasible for Big Island Dairy. There simply isn’t enough revenue to offset the high expenses associated with operating a dairy in Hawaii.”
Whitesides said the revenue bonds are needed to help rebuild what he called a broken industry and ensure fresh local milk remains available as an alternative to milk that arrives from the mainland sometimes 2 weeks old.
For many decades, Hawaii’s milk supply was 100 percent local. But that changed in 1985 when Safeway began importing milk in response to a discovery that a lot of local milk was tainted with pesticide passed through cows that were fed the tops of pineapples treated with heptachlor.
Later, high real estate and feed costs helped put more local dairies out of business. Eight Hawaii dairy farms have closed since 1999, leaving just two that produce a little under 20 percent of all the milk consumed in Hawaii.
Kyle Datta, general partner of a company called Ulupono Initiative, is investing in ways to improve Hawaii’s local food supply. He said in testimony on the dairy bond bills that building another milk processing plant here will help existing dairies survive and possibly help attract new dairy enterprises.
Ulupono explored buying Cloverleaf Dairy last year but didn’t proceed with a purchase. The company also has plans to help establish a dairy on Kauai.
“With only one other milk processor in the state, Big Island Dairy could provide market competition, while making the largest Hawaii dairy more efficient and profitable,” Datta said in written testimony. “This is a key first step to help Hawaii secure its remaining dairies and redevelop its local dairy industry.”
Datta said there were six milk processing plants operating in Hawaii in 1999. Today Meadow Gold operates processing plants in Honolulu and Hilo, he said.
Datta also said that imported milk, which is used in the state’s public school lunch program, isn’t as fresh as local milk. He said more than half the milk sold in Hawaii is over a week old before it reaches store shelves and that a 2006 University
of Hawaii study found that 90 percent of milk imported to Hawaii had bacteria levels above federal Food and Drug Administration standards five days before a carton’s “sell-by” date, producing a sour or spoiled taste to most milk earlier than consumers expect.
Meadow Gold has not testified on the milk plant bills, but the company’s Texas-based parent, Dean Foods Co., responded to a request for comment with a statement that said it welcomes Hawaii dairy farm growth and strongly agrees that increasing local milk production would be good for everyone.
“Our company has held a keen focus toward supporting diversified agriculture in Hawaii with the intent that local dairy producers would develop the means to be able to compete with their mainland competition,” said company spokesman Jamaison Schuler.
Schuler also said milk imported by Meadow Gold is tested upon arrival to meet the same quality standards as locally produced milk, and that the Hawaii processing plants have been recognized as top performers in the last four years based on consumer satisfaction and third-party audits.
“Processing raw milk is a complex and highly regulated process, and we’re proud of our heritage of serving quality products and supporting our communities in Hawaii for nearly 120 years,” Schuler said.
Of the three bills, Senate Bill 2804 has advanced the furthest to date, passing a Water and Land Committee hearing Feb. 3 and passing the Ways and Means Committee Wednesday. A companion bill in the House, HB2275, was deferred. A similar bill, HB1982, passed an Agriculture Committee Feb. 4 and has been referred to the Finance Committee.
The only opposition to any of the bills came from Cathy Goeggel with Animal Rights Hawai‘i and Suyin Phillips.
Supporters joining Big Island Dairy, Ulupono and Ige’s administration have been the Hawai‘i Farm Bureau Federation, representatives of the Hawaii Cattlemen’s Council, Hawaii Foodservice Alliance and Dylan Armstrong.
Ed Boteilho Jr., owner of Cloverleaf Dairy, said in an interview that he’s not sure how development of a new milk processing facility owned by a competitor would affect his business.
“I’m taking a beating from the (23 percent Meadow Gold) price reduction,” he said. “I don’t know how long I can stay in business, but I’m trying to.”