The state’s largest milk producer is seeking the state’s permission to sell its milk at a price lower than the law currently allows.
Big Island Dairy LLC has requested a waiver from the state Board of Agriculture to sell its milk for less than the $3.06 minimum price set for wholesale milk processed on the Big Island, and less than the minimum for Oahu-processed wholesale milk, which ranges between $2.36 and $2.71 per gallon, based on California wholesale prices and transportation costs plus $1.05.
The Ookala dairy, formerly known as Island Dairy Inc., is one of only two local commercial dairy farms left in the state. The other is Cloverleaf Dairy in Hawi.
A public hearing on that request is scheduled for 10 a.m. today at the state Department of Agriculture’s Waimea Irrigation System Branch conference room at 66-1220B Lalamilo Farm Lots Road.
A gallon of Meadow Gold milk was $7.99 Monday at Sack ‘N Save and $8.39 at KTA Super Stores, while KTA’s Mountain Apple brand milk was $5.49 a gallon and Best Buy mainland milk was $5.69 a gallon at Sack ‘N Save.
Grant Tomita, acting Commodities Branch director for the Department of Agriculture, said Thursday the hearing is for public testimony on the proposal.
“We would then present that testimony to the Board of Agriculture at their next meeting, probably in August,” he said. Tomita added that the agriculture board would have to approve any changes.
Ed Boteilho, Cloverleaf Dairy’s owner, said he wasn’t consulted by Island Dairy, which is owned by Steve Whitesides, an Idaho dairyman, before the waiver request was made. Boteilho declined to comment further on the matter, saying he’d save it for testimony at the hearing.
Kees Kea, a former partner in Island Dairy before it was bought out by Whitesides, said Thursday he “never heard of a dairyman wanting less for their hard work.” Kea, who is in the process of opening his own dairy and cheesery in Ookala, handed out a written statement calling Big Island Dairy’s request “ruthless.”
He said Island Dairy’s motivation was to make its milk more attractive for purchase by Meadow Gold, the state’s only milk processor.
“If this goes through, and squeezes small dairies out of the market, when this large dairy is the only game in town, they can not only influence milk pricing in the future but hold (Hawaii Department of Agriculture) hostage by asking for any milk price increases it wants, or it will pull out and leave no dairies on the Big Island, and (Meadow Gold) will have to resume importing their milk from the mainland,” the written statement proclaimed.
Kea also took issue with the wording in the state’s summary of the proposed amendment to Hawaii Administrative Rules to allow the price waiver. The summary read: “To allow the producer or producer-distributor in the Hawaii milk shed to request a waiver that would permit the sale of milk for less than the minimum price.” A second summary was the same, except the word “Hawaii” was replaced with “Honolulu.”
Kea’s objection was the phrase “producer or producer-distributor,” which he said should be changed to “producer and producer-distributor” so any waiver proposals would have to be submitted by consensus of all producers instead of by a single producer.
Tomita said the proposed waiver has caused confusion.
“The confusion is ‘producer’ is someone who produces milk,” he said. “‘Producer-distributor’ is someone who processes and distributes milk. This is all by definition. And ‘distributor’ is someone who distributes milk. Currently there are only two producers of milk on the Big Island and there is only one distributor, Meadow Gold. There’s no producer-distributor there.”
Hawaii milk prices are regulated by the state under the Milk Control Act of 1967, which was intended to curtail price competition between local milk producers. The law was intended to eliminate “unfair, destructive and demoralizing trade practices in the industry.” At that time, all milk sold in Hawaii was locally produced.
Farmers at that time complained that distributors were still paying them essentially the same amount for their milk as they had more than a decade earlier despite steep hikes in production costs.
Since then, all but two Hawaii dairy farms have gone out of business. Factors include real estate development pushing dairies into less desirable land, the crisis following the discovery of the pesticide heptachlor in local milk in 1982, and the importation of mainland milk starting in 1985.
Tomita said the heptachlor crisis, which was caused by pineapple tops treated with the pesticide being fed to dairy cattle, “changed the whole complexion of the industry locally.”
Another game changer is the rising cost of feed for dairy cattle. Eight Hawaii dairy farms have gone out of business since 1999 due largely to hikes in the costs of buying and shipping feed from the mainland.
Big Island Dairy grows its own feed corn on 700 acres of land near Ookala. The corn, a genetically modified crop, has come under fire by anti-GMO activists.
About 80 percent of the milk consumed in Hawaii is imported from the mainland, mostly from California.
Tomita said Big Island Dairy’s request is due to its planned expansion from 1,100 milk cows to 2,200 head, plus a proposed Kauai dairy which plans to raise 2,000 grass-fed milk cows to supply Oahu with milk that Tomita said would be subject to the Honolulu minimum price.
“The whole caveat of all this is that Meadow Gold does not have to buy the milk. They can buy the milk from wherever they want. They’re not required by law to buy local milk. But if they do buy the milk, they do have to abide by the milk act, the minimum price.
“The face of the market is changing, locally, nationally and globally. We actually respond to what the producers ask, the department does. When they ask for a change, we look at it, we talk to them, and we decide whether we can present it to the board or not. In this particular case, we did present it to the board. Now, it’s up to the board to decide whether to adopt these changes or not.”
Calls on Monday to Whitesides and Meadow Gold President and General Manager Glenn Muranaka were not returned by press time.
Email John Burnett at jburnett@hawaiitribune- herald.com.