When the last dairy on Oahu closed, its manager, Ms. Van Der Stroom, provided an epitaph, “It’s very difficult for us to find our own acreage and find the land that we need … There are lands available, it’s just very difficult to obtain them.”

This was a bizarre statement.

According to the recent Census of Agriculture, statewide 828,184 fewer acres were farmed in 2012 than in 1984. These lands sit vacant, but are valued at three times the price of agricultural land nationally. A drive to the North Shore reveals thousands of acres of empty farmland.

This land is very difficult to obtain because no real market exists for it. When you have markets for agricultural land actually working you see something very similar to the Honolulu Board of Realtors monthly sales report.

This is because agricultural land ownership is concentrated in large blocks of land owned by a few people (or entities like government).

One landowner who Ms. Van Der Stroom probably contacted would be David Murdock, who owns Dole Foods and several thousand acres of Oahu land.

David Murdock is like Genshiro Kawamoto in that he basically bought a lot of valuable land and turned it into vacant lots.

Murdock alone has accounted for a quarter of the total agricultural land that was taken out of production; the whole island of Lanai plus thousands of acres on other islands.

He had the idea he would develop the land with hotels and housing but that never came about. He held on to it for years, finally selling to billionaire Larry Ellison.

Ellison plans to grow organic vegetables in Hawaii, which is a plus, but he plans on shipping them to Japan and China.

Understanding how the lack of a market for agricultural land interacts with agricultural production helps to understand the prices of other things as well.

It has to do with the price of milk.

The remaining two licensed commercial dairies in Hawaii receive 35 cents per pound of milk, or about $2.98 per gallon. This milk is sold for $7 or more per gallon. The mark up over the price paid to the local farmer is 240 percent.

Milk is imported from California where dairy farmers are paid $2.25 per gallon. Shipping costs for a gallon of milk from the mainland is $1.10.

These two costs add up to $3.35 a gallon for milk that retails at Safeway for about $5.50, from my own unscientific fieldwork. The mark up over these costs is 65 percent.

The price of a gallon of whole milk in Los Angeles is $3.68, where southern California dairy producers are paid is $2.25. The markup in L.A. is 64 percent, which is almost identical to Honolulu.

The 240 percent mark-up is a result of high demand for locally produced milk. That high price should lead to more farms opening and more local milk.

Increased supply should lead to falling prices until they approach the cost of production. That’s how markets are supposed to work.

The problem is that land is available but “it’s very difficult to obtain.”

Local milk actually has a competitive advantage so long as it costs more to transport refrigerated products like milk than it does to ship bulk unrefrigerated products like feed. That is why there is a 35 cent advantage for the local product.

But there is more to this story.

The price per gallon of milk is usually compared to the cost of production per gallon or pound. You get the per-unit cost when you divide the costs per cow by the milk produced per cow.

Hawaii cows produce around 14,000 pounds of milk annually, while California cows produce over 20,000 pounds. California cows are at least 41 percent more productive. This explains the entire difference in the price between producers in California and Hawaii.

That’s right, our problem is lazy cows. If Hawaii cows produced as much as contented California cows then the local price would actually be about 10 percent lower than California’s, $2.03.

Some new dairies are opening. The Ulupono Initiative expects to double the amount of milk produced in Hawaii with a new dairy on Kauai.

It will take a few more of these to produce all of the milk the state consumes. They would use no more than 5,000 acres and 10,000 cows. Enough feed for these cows could be grown on another 5,000 acres. A fully functioning industry would also mean more productive cows and a further decline in the price of milk.

The problem is a land holding pattern that dates back to the Hawaiian Kingdom with different faces; Dole, Murdock and Ellison. Combine this with the highest possible value for that land being when it is sold for housing, hotels or condo-hotels. Then low property taxes in turn make it inexpensive to hold this land out of production.

This is a situation that cries out for land reform. Where big estates are broken up and turned over to the peasants. We just don’t have enough peasants.

Reducing the demand for housing coming from nonresidents would have an effect on agricultural land. Raising the residential property tax on nonresidents to $1.65 per hundred dollars valuation from 35 cents per hundred dollars also reduces the incentive for holding this land out of production.

Larry Ellison says he want to “turn Lanai into an Eden.” That’s what led to our problems today.

Too little paradise too much demand.

About the author: Lawrence W. Boyd has Ph.D in economics with a specialization in labor economics, public finance and monetary economics. He is a tenured faculty member at the University of Hawaii at West Oahu Center for Labor Education and Research.

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