Hawaii’s only milk processor has convinced a regulatory board to relax a price floor for locally produced milk to help the company compete with mainland imports. But one dairy producer is afraid that the decision will put him out of business.

The state Board of Agriculture voted Monday to amend the state’s Milk Act to allow dairies to petition the board to waive the minimum price for selling their milk to distributors. And if they choose not to, they may not have a buyer for their product.

There are only two dairies currently operating in Hawaii, where an estimated 90 percent of food is imported. The Milk Act, which regulates the price of milk and how much is produced, was passed in 1967 back when all milk consumed in Hawaii was produced locally and fierce competition among dozens of dairies in the state sparked calls for a price floor. For milk processed on the Big Island where both dairies are located, that’s $3.06 per gallon.

Cows

Dairy cows graze in a field.

U.S. Department of Agriculture

Since then, Hawaii’s milk industry has shrunk considerably and only one distributor remains: Meadow Gold Dairies, which has been distributing milk in Hawaii since 1897.

Two weeks ago, Hawaii Board of Agriculture Chairman Scott Enright met with officials from Meadow Gold who said the company would no longer be able to buy milk from Hawaii’s two remaining dairies if prices didn’t become more competitive with imports.

In response, Enright called a board meeting to amend the rules. The board had considered waiving the minimum milk price since last February, but the issue became urgent with milk prices in California expected to drop considerably in January, Enright said.

Enright noted that the company had changed ownership several times and is now owned by Dean Foods. The international food and beverage company is the largest processor and distributor of milk nationwide and brought in more than $9 billion in net sales last year.

“If there’s no buyer for your milk, I get nothing. And nothing is unacceptable.” — Brad Duff, Big Island Dairy

“They’re all about the bottom line,” Enright said. “It’s not the company that people, especially people my age, remember.”

Gov. David Ige signed off on the change Monday afternoon. On Tuesday, the Board of Agriculture approved a petition from Big Island Dairy asking to the board to waive the minimum price requirement.

Brad Duff, general manager at Big Island Dairy, said that he would like the company to keep receiving the same amount of money for his product, but understands that with imports, there’s global competition.

Duff said the waiver would allow Meadow Gold to pay the same price for milk as in California, plus the cost of transportation.

That means less income for Big Island Dairy, but Duff said the alternative is worse.

“If there’s no buyer for your milk, I get nothing,” he said. “And nothing is unacceptable.”

“This will lead to basically my elimination.” — Ed Boteilho, Cloverleaf Dairy

But Ed Boteilho, who runs Cloverleaf Dairy on the Big Island, said the change would drive him out of business. His family farm of fewer than 700 cows has been around for more than 50 years and he wants to maintain the price floor to cover the cost of production. He said he pays more for feed and other input costs than Big Island Dairy, which is a larger company and a subsidiary of Idaho-based Whitesides Dairy.

“The board is acting on this scare tactic,” Boteilho said. “They know that this decision is going to hurt me … This will lead to basically my elimination.”

Jamaison Schuler, spokesman for Dean Foods, said Tuesday that he couldn’t speculate on whether the company will continue buying milk from Cloverleaf Dairy, which chose not to seek a waiver for the price floor on Tuesday.

“Meadow Gold is pleased to see our state leaders recognize the value of increasing local milk production and the sale of that milk at rates competitive with mainland milk sources,” Schuler said in an email. “With this change, we may be able to purchase more of the milk we process from local producers.”

It’s unclear whether consumers will benefit from the changes. Enright said that whether the cost of a carton of milk at the grocery store drops is up to distributors, and that the rule change wouldn’t affect the price of imported milk like Lucerne.

“They’re strong-arming us to change laws or they’re going to destroy these two dairies.” — Michelle Galimba, Board of Agriculture member

Kyle Datta from Ulupono Initiative, a social investment firm that is funding a planned dairy on Kauai, said the rule changes won’t impact the company because it isn’t subjected to the same price floor as the Big Island dairies and already intends to produce milk at rates that out-compete imports.

Jerry Ornellas, a member of the Board of Agriculture from Kauai, said he felt compelled to support the price reduction even though he said Dean Foods doesn’t have a good track record as to how it treats farmers.

In 2011, the company agreed to a $140 million settlement to compensate farmers in the Southeast United States for price manipulation.

“I voted in favor only because there was nothing we could do to force Meadow Gold to purchase milk locally,” Ornellas said.

Another board member, Michelle Galimba, similarly felt trapped.

“They’re strong-arming us to change laws or they’re going to destroy these two dairies,” she said of Meadow Gold. “It’s really not pono.”

Ornellas said by passing Monday’s amendment, the board had essentially gutted the Milk Act, despite every other state in the nation having a similar regulatory framework or abiding by federal marketing orders that set minimum price levels.

“I don’t know what the fallout is going to be, but it has the potential to be messy,” Ornellas said, adding, “the red flags go up when a farmer comes in and asks for less money for his product.”

Note: The Ulupono Initiative was founded by Pierre and Pam Omidyar. Pierre Omidyar is the CEO and publisher of Civil Beat.

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