On many farms in Hawaii, signs of impending financial doom can be really small.

Take the tiny aphids that brought the Bunchy Top Virus to banana plants on the 600-acre Hamakua Springs Country Farms on the Big Island.

They were enough to convince farmer and affordable-energy activist Richard Ha to recently announce the end of an era on his blog. After employees finish bagging the current banana harvest in March, the farm will cease its agricultural operations and 26 remaining employees will be laid off.

It was just the latest strike against agriculture in the islands, coming on the heels of Alexander & Baldwin’s announcement that the company is phasing out sugar farming on the 36,000-acre Hawaiian Commercial & Sugar Company plantation on Maui. The company has been harvesting sugar cane on the island for nearly a century and a half.

A devoted farmer, Ha explained in a recent interview that the decision to end Hamakua Springs operations grew out of the realization that tight margins and remarkably volatile costs were conspiring against the farm’s long-term economic prospects. The virus-bearing aphids were merely the last of many straws.

“We preferred to be in a position to control our own destiny,” he said. “We are not going to go bankrupt, but sometimes … it is best to not do an aggressive move.”

Local Handicaps                                                                      

Numerous advances since World War II have allowed developed nations to make remarkable strides when it comes to agricultural efficiency, according to Michael Roberts, an associate professor of Economics at the University of Hawaii.

Over a period of generations, vast farms in the U.S. and many other places have profited from economies of scale and ever-increasing mechanization. Some farmers have made increasingly effective use of crop-breeding, fertilizers, chemicals and, to some extent pesticides, to produce more food for less.

Such efficiency can make it easier for them to face off against stiff competition from underdeveloped countries where farms often save on production costs thanks to very low pay, less stringent environmental and safety standards, cheap land and other factors.

“It’s almost impossible for people here to compete with cheap labor and larger expanses of land.” — Michael Roberts, associate professor of economics at UH

When it comes to many of the areas where farming has improved its productivity, there doesn’t seem to be much that can be done to help farmers in Hawaii to find their place — at least not in the fiercely competitive farm commodities markets.

“It’s almost impossible for people here to compete with cheap labor and larger expanses of land,” Roberts said.

Hawaii faces many challenges. Geographically, we are far from potential off-island customers, and farmers face costly interisland distribution. And, for the most part, topography and the size of the islands conspire to limit farm size.

On the labor front, it is hard to imagine farm salaries coming down in the most expensive state in the country.

And subsidies on sugar, which long protected one of the state’s iconic agricultural industries, have been weakened and are likely to disappear entirely, according to various experts.

In such an environment, Ha has, when repeatedly faced with questions about whether to invest in the farm in the last two years, taken a pass.

The reason: He sees no way to successfully pass along the investment costs to customers because food commodity prices are largely decided on the global market, not on his farm.

“We’re price-takers, not price-makers,” Ha said. “We can’t raise the price and be competitive.”

Pricey Oil Sapped Farmers’ Energy

For many farmers, this means that survival depends on changing the part of the equation they have some control of, their costs, to boost profit margins.

That is where Ha’s attention has long turned to oil. Ha, who is the president of the Hawaii Island Energy Cooperative, said that the looming closure of his farm is due partly to the enduring and widespread impact of high petroleum prices that are intricately intertwined with energy-intensive farming in the islands.

With oil prices cascading below $30 per barrel — a level not seen since 2002 — that might seem surprising.

After all, his farm survived the surging tides of recent years — when crude oil soared to $146 per barrel in 2008 and, as recently as 2014, it cost more than $100.

Oil is now at barely one-fifth of its peak price and a fraction of the mid-2014 cost. But Ha said many products containing petroleum that are crucial to farmers haven’t come down much in cost, if at all, even though earlier price increases were justified by rising oil prices.

“We should be in the best possible position today. We should be very profitable today,” he said. “If we’re not, it isn’t a good sign.”

From a competitive standpoint, the state’s energy prices have created an enormous handicap for farmers, particularly on the Big Island where the lion’s share of farmland is located.

Until mid-2014, farmers there were paying nearly four times more than their mainland competitors for electricity used to do things such as refrigerate fruits and vegetables, pump water to irrigate crops and process foods for shipment.

Electricity prices are largely due to oil, which is burned to generate nearly 70 percent of Hawaii’s electricity. Rising oil prices essentially pass directly through to customers, accounting for about half of the price of power in the state with by far the nation’s highest electric rates.

This helps to explain the sharp contrast between the average national rate for electricity for commercial uses of about 11 cents per kilowatt-hour and the Big Island commercial rate which is at nearly 30 cents even in this moment of remarkably cheap oil.

“I’m a fighter. I don’t like to lose. I’m thinking, Hawaii, let’s not just be equal. Don’t give up and say, ‘We don’t care.’ We want to be winners.’” — Richard Ha

There are many indirect oil costs, as well. Energy prices also get factored into transporting equipment to the islands and even into the cost of packaging — Hamakua Farms banana boxes come from the West Coast.

Closer to the soil, according to Jose Dizon, the general manager of Parker Ranch’s electricity subsidiary Paniolo Power on the Big Island, the value of oil is a significant component in prices for everything from feed to fertilizer and even water, which has its own energy-related pass-through costs.

No one in Hawaii seems to have calculated the combined direct and indirect costs of all energy consumption for island farmers. But Matthew Loke, a visiting researcher at UH-Manoa’s Department of Natural Resources and Environmental Management, cited data from the 2012 Agricultural Census indicating that direct energy costs made up 9.3 percent of farm production costs in Hawaii.

For Ha, until 2013, the farm’s monthly electric bill was in the $10,000 to $11,000 range, which led the farm to take out a loan and invest in a hydroelectric power system to generate energy from a stream on the land. The monthly savings, he estimated then, was about $6,000 per month.

Despite those savings, in 2014, high oil prices — and some early kinks in management of the hydroelectric system — helped to convince him to tear out the farm’s hydroponic tomatoes, rather than pay to upgrade the tomato infrastructure as part of a mid-term investment.

Even now, he is convinced that future oil prices will rise — even if he doesn’t know when — making it particularly hard to calculate costs and gamble on specific crops.

Such challenges are part of why, Dizon at Paniolo Power said, Hawaii should begin a firm shift away from using oil to generate electricity right away — not when the next price surge hits and it is too late.

“Now is the time to hedge for our future, not sit back and relax and say we’re good for another couple of years,” Dizon said.

Ha also sees a speedy switch to affordable renewable energy as an opportunity for Hawaii to escape the whims of volatile international fossil fuel markets. “We have the chance of turning this whole economy that we are used to around.”

Lower energy costs would ripple through the farm economy in all sorts of positive ways, he notes, and could put Hawaii farmers on more equal footing with mainland competition.

“I’m a fighter. I don’t like to lose,” said Ha. “I’m thinking, Hawaii, let’s not just be equal. Don’t give up and say, ‘We don’t care.’ We want to be winners.’”

Between Past And Future

Kyle Datta, general partner of the Ulupono Initiative social investment firm, sees the challenges facing Hawaii farmers from up above.

“Hawaii agriculture is going through a phoenix-like transition, away from the death of some older (farming) models of the last century,” said Datta. “Agriculture is being reborn for this century.”

He said that the recently announced closures on the Big Island and Maui involve businesses that endure fairly high labor costs that make them inefficient compared to competition elsewhere.

For Datta, they are indicative of outdated business models that managed to survive and thrive for the first 70 years of the 20th century when they could count on cheap water, fairly inexpensive land and labor, and cheap energy.

Components of that model have even limped into the 21st century, when all of those costs are much higher, even as commodity prices have been turbulent and agricultural protectionism greatly weakened.

But while some people suggest the pressures on farmers in Hawaii signal that the end is near, Datta strongly disagrees.

Success now requires greater diversification, a better targeting of crops to the right local markets and deft branding of select Hawaii products — products like macadamia nuts, Kona coffee and, he hopes, high-quality beef that Ulupono is partnering on.

“Hawaii agriculture is going through a phoenix-like transition, away from the death of some older (farming) models of the last century.” — Kyle Datta, Ulupono Initiative

There is also greater profitability, various experts said, in producing value-added processed products. After all, cole slaw is worth far more than cabbage and ketchup is more lucrative than tomatoes. Processing would be likely to expand if the energy required to make it happen were more affordable.

In the meantime, both Roberts and Datta noted that there are opportunities on every island where there is already a network of small-to-medium-sized farms working with distributors who get the food to farmers markets, boutique markets and restaurants.

“It is a viable sector of the market,” Datta said, adding that such avenues offer an increasingly established path forward — even if it remains unclear how large that market might become.

But it makes Datta hopeful as he returns to the big picture.

“It is always sad to say goodbye to old friends,” he said, “but it is really great to say hello to new friends.”

Down On The Farm

As for the more immediate future, Ha and is family are looking at alternative food-related uses for their property.

In recent months, the farm has received inquiries about farming tilapia, sweet potatoes and spices, including basil. Tenants who lease space for corn may take over the land where the last bananas are growing.

And one attention-grabbing group expressed an interest in growing medical marijuana where the tomatoes were — assuming they are able secure a permit to do so from authorities.

While many obstacles could arise on that front, Ha noted that pakalolo could be suitable because growing marijuana requires a lot of energy — making the hydroelectric plant useful to them — and because it is likely to be a growth industry with competition limited by permitting and regulation.

Ha plans to be supportive of whoever leases his land, and he might even collaborate with them. But he knows that the transitions his family farm is moving toward largely involve passing along risks to the tenants.

So the next time a small, but potentially detrimental challenge shows up on the land, it won’t risk ruining his family’s future.

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

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