Milk prices in Hawaii have long been regulated by the state to support the local dairy industry, which limits price competition and increases what consumers pay. Now one local dairy wants the freedom to sell milk for less than state law requires.

The proposed change could introduce new competition among producers of local and imported milk, potentially lowering prices Hawaii residents see on store shelves.

Last month the average retail price for a gallon of whole milk statewide was nearly $7.

Hawaii’s biggest dairy, Big Island Dairy LLC, is asking the state Department of Agriculture to allow farms to sell milk to processors for less than regulated minimum prices.

It’s unclear whether Hawaii’s other major dairies — a second farm on Hawaii island and a planned farm on Kauai — are aligned on the idea that could affect the wholesale price farms receive for fresh milk.

Historically, Hawaii dairy farms have petitioned the state to raise minimum prices designed to provide farms with fair financial returns.

Even with the price support, many local dairies have been driven out of business since the 1980s mainly because of high feed, labor, land and transportation costs coupled with environmental issues and urban encroachment.

Today a rebound in local milk production is afoot, and regulators are being asked by Big Island Dairy to tweak minimum-price rules.

The dairy, formerly known as Island Dairy Inc., was acquired two years ago by the owner of Idaho-based Whitesides Dairy and is doubling the size of its milking herd from about 1,100 cows to 2,200 cows. The company also is building a new milking facility and relies on growing its own corn to feed its animals.

A Big Island Dairy representative said the company wants the opportunity to negotiate its own contract for selling milk, and referred further comments to state officials.

Grant Tomita, milk control program specialist and acting commodities branch manager for the Agriculture Department, said Big Island Dairy is seeking the rule change to be more competitive with milk imported from the mainland.

"They want to make it conducive for (milk processor) Meadow Gold to purchase their milk," he said. "It will probably be lower than the minimum price set by law."

A minimum wholesale milk price was established through the Milk Control Act of 1967. The law was set up to eliminate "unfair, destructive and demoralizing trade practices" in the industry where milk producers and processors had been at odds over production supply and prices.

At the time the law was created, local farmers supplied all the milk consumed in Hawaii. The farmers, however, had relatively low bargaining power with distributors and complained that the price for their milk had not significantly changed in 15 years despite dramatically higher production costs.

The law allocated production quotas and provided for a minimum price in any county where 55 percent of producers sought such protection. Minimums were established only on Oahu and Hawaii island because dairies on Kauai and Maui processed their own milk.

Minimum prices, however, did not prevent numerous dairy farms from going out of business over the decades. 

Real estate development pressure in the 1970s forced some dairies onto marginal lands where they suffered, and the industry was hit by a consumer backlash in 1982 when heptachlor was shown to be in milk from cows eating tops of pineapple treated with the pesticide.

Milk imported from the mainland began flowing in 1985 and since then has poured into Hawaii in greater amounts as local dairies faced more challenges.

Since 1999 eight Hawaii dairy farms closed under pressure largely from rising costs to buy and ship feed from the mainland.

Today imported milk mainly from California accounts for roughly 80 percent of Hawaii’s supply. Tomita said Big Island Dairy’s planned expansion could reduce imports to 60 percent. The planned startup on Kauai called Hawai’i Dairy Farms and backed by investment firm Ulupono Initiative could cut imports to 40 percent.

The minimum price, however, could get in the way of the envisioned rebound, Tomita said.

That’s because the Milk Control Act does not force processors to buy milk from local dairies. The law only requires that a minimum price be paid for milk purchased. There also are quotas in the law determining how much milk is subject to minimum pricing.

Meadow Gold is the only milk processor in the state, and processes milk on Oahu and Hawaii island. A company official was not available for comment. Tomita said Meadow Gold pays the minimum price for local milk.

On Oahu the minimum price was last fixed several years ago to equal the wholesale price in California plus transportation cost, or $1.05 per gallon over the California price. A floor and ceiling also were set at $2.36 and $2.71, respectively. The last Oahu dairy farm, Pacific Dairy in Waianae, ceased operating in 2008.

On Hawaii island the minimum price is based on a production cost study the Agriculture Department conducts any time producers seek a price adjustment. The minimum was last set at $3.06 per gallon in 2008, which was up from $2.54 in 2007, $2.28 in 2005 and $2.02 before that.

The planned Kauai dairy proposes raising 2,000 cows fed on grass and supplying Oahu with milk that Tomita said would be subject to the minimum price.

A Hawai’i Dairy Farms representative was not prepared to comment.

Ed Boteilho Jr., owner of Cloverleaf Dairy on Hawaii island, reserved comments on the proposed price rule change for public hearings the Agriculture Department has scheduled to hold on the matter.

The hearings are set for 9 a.m. July 14 in Honolulu and 10 a.m. July 15 in Waimea on Hawaii island.

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