Agribusiness Corporation Gives Tenants Control Over Most State Land at Kekaha

posted in: April 2004 | 0

It’s not often that private companies get to call dibs on state land, but in Kekaha, Kaua’i, not only do they stake their claim to public turf, but they also may one day be the primary gatekeepers to thousands of acres of some of the richest public agricultural land in the state.

Normally, public lands are put up to lease at a public auction. But now nearly 92 percent of the arable portion of Kekaha lands set aside by executive order to the state Agribusiness Development Corporation has been locked up by just six tenants who have neither bid on the land nor who pay market rents.

Kekaha is a natural floodplain kept dry only by a vast network of pumps and drainage ditches. An elaborate irrigation system that stretches and winds for miles helps keep the land arable. Used to be, Amfac maintained that infrastructure. When the company closed operations at Kekaha in 2000, the state was stuck with the costly problem of maintaining the drainage system. With nowhere near adequate resources to keep the system from deteriorating, the state partnered with an ad hoc group of smaller, yet substantial, farmers already occupying portions of the old sugar plantation: the seed corn operations of Syngenta and Pioneer Hi-Bred International, the shrimp farm CEATECH, the sugar plantation of Gay and Robinson, and diversified farmer Wally Johnson of Far West Ag, Inc.

With a few million dollars from the state and the U.S. Navy (whose Pacific Missile Range Facility also occupies the Kekaha plain), the ADC has taken on some specific, major repairs that the infrastructure needs. As for the rest of the maintenance responsibilities, with tens of thousands of dollars from each of the tenants, the tenants have been maintaining the infrastructure in exchange for minimal rent, or no rent at all, paid to the state over the last few years.

Because these companies are maintaining infrastructure that benefits the entire Kekaha area, recent meetings of the ADC’s Kekaha committee have included discussion about how much control the co-op should have over the ADC land.

Last December, Sam Lee, a former state land manager on Kaua’i who now is a paid consultant to the ADC, told the tenants that the ADC wants the co-op (now known as the Kekaha Agriculture Association) to have a $250,000 emergency reserve and to take over administration of the ADC’s National Pollutant Discharge Elimination System permit, in addition to controlling all of the infrastructure, which includes two hydro-electric generators and backup generators.

While the KAA seems agreeable to taking on these tasks, its members are concerned about liability issues, especially since hunting and fishing occur in the “common areas” of the Kekaha ag lands. At the December meeting, Denis Kam, an ADC board member, said, “If the co-op is going to pay for what goes on, then they would want control of that common area… Ideally, the ADC gives the co-op some kind of agreement for control… of the entire property.”

At that same meeting, ADC executive director Alfredo Lee asked the board how he should deal with inquiries from non-co-op members seeking land. ADC member Larry Jefts suggested establishing “performance criteria and procedures.”

A draft Kekaha Business Plan sets forth procedures for any new applicants, but it has not yet been given final approval. Under the plan, applicants would need to provide a resume showing farming experience, a utilization plan that includes estimated costs, tax clearances, an affidavit that the applicant is not delinquent on any state obligations and has not had a contract cancelled for failure to satisfy terms or conditions, a financial statement, and copies of state tax returns the last for five years.

The plan also lists other considerations: higher priority will be given to intensive agricultural operations, and leases will also be considered for displaced sugar workers, other successful farmers, and farmers willing to participate in demonstration or educational projects with the University of Hawai’i’s College of Tropical Agriculture and Human Resources or the Pacific Basin Agricultural Research Center.

Lee told Environment Hawai’i that he hasn’t received many inquiries from new farmers. He says he has gotten calls from people asking, “Do you have land and so on and so forth,” but adds, “We want to settle the current situation there first. We asked them [new farmers] if they’re very interested, to send a letter to me, and I put it in a waiting file. So far, I think I’ve had only one.”

But at the Kekaha committee’s January meeting, most of the remaining available land was gobbled up when the committee voted to approve increasing the acreage allotted to the six main tenants: CEATECH, Syngenta, Pioneer, Johnson, Gay & Robinson, and Wines of Kaua’i. Originally, the six occupied a total of 5,604 acres out of 7,758 arable acres (out of a total of 12,500 acres of former DLNR land set aside to ADC). The January action increased the acreage of these tenants to 7,122 acres, or 92 percent of arable land. Just 636 acres are available for new farmers.

How the ADC will administer those last 636 acres was not discussed at the January meeting. As for the 7,758 acres now under encumbered by KAA members, the committee decided to allow them to sublease any unused acreage under their permit.

Wines of Kaua’i wants small farmers to grow grapes on its land, and other KAA members mentioned that they had been approached by other farmers wanting to work their land or the unoccupied wasteland areas.

Kekaha committee member Chris Kanazawa said that giving the KAA control to sublease their smaller parcels might invite criticism of the ADC for allowing one private group to control such a large area of public land.

ADC member Teena Rasmussen, however, argued that “it is easier for us if they did take all the land and do subleasing. You’d get more farming done if we allow subleasing and more farmers on the land.”

To ensure that all sublessees contribute to maintenance costs, the committee agreed that they should be required to join the KAA, which operates much like a condo association, with each tenant paying a fee for upkeep of common areas and basic infrastructure.

While subleasing addressed the problem of deciding how new farmers get onto the land, Kam said he felt the ADC needed to do more. “The ADC should set what kind of return we should expect,” he said. “We need to justify the lease cost in case somebody asks why we’re giving this property out and not putting it out to bid.”

Kanazawa countered that if the ADC, through the KAA, can get the lands up to par and keep farmers on it, that’s good enough. Benefiting the property took precedence to making a lot of money, he said.

Still, Kam wondered whether they should discuss what would be done with the unused acreage before giving it to the existing tenants. “CEATECH was originally asking for 1,500 acres and their build-out was going to take 10 to 15 years. Do we want to allow land banking?” he asked.

Rasmussen answered that giving the tenants the ability to sublease solves that.

The committee then voted to allow subleasing of the Kekaha lands. While it is not reflected in the meeting minutes, members also expressed their desire that the subleases should come before the ADC for approval. Later in the meeting, the committee also approved the increased acreages for the six permittees.

Other Tenants

While it may seem like the KAA members are the only tenants on the land, they are not. The ADC has also inherited DLNR permits for small flower farmer Gary Smith and Senter Petroleum, which stores fuel tanks near the old Kekaha mill for $1,125 a month. Then there are the “undocumented tenants.”

According to the draft Kekaha Business Plan, “There are about two dozen pig farmers who have been farming on the land without any form of legal authorization for many years…These farmers, each owns between half a dozen to a hundred pigs, had paid no rent and answered to no one.”

Lee says that the ADC isn’t ready to deal with the hog farmers, but know the need to be addressed. “There was one thought to have the farmers join the co-op…The ADC doesn’t have a desire to just kick people out, but we may have to say, because of the health and environmental issues, we have to tell those folks, in order to stay, you need to take care of those issues.”

There is also a beekeeper who has long used the area without authorization. The plan states that he has been directed to work with the KAA. The plan also notes, “Occasionally, horses and donkeys are seen on the land. Permits need to be issued for these people with animals.”

Expense Report

The Kekaha Agriculture Association has agreed to take on the task of maintaining the infrastructure at Kekaha. In return, for now, the Agribusiness Development Corporation is using the association’s expenses to calculate new, lower rents for KAA members.

For 2004, the ADC has taken the gross annual rent set by the Department of Land and Natural Resources (most KAA members originally had DLNR permits, which were later given to ADC), has deducted each member’s 2003 expenses (paid mostly to CEATECH with a smaller portion going to Gay & Robinson), and divided the remainder by 12.The end result will be a monthly rent for the next year.

“We follow what the DLNR did,” says ADC executive director Alfredo Lee, adding, “This is a stop-gap measure.”

To make sure the state is not getting ripped off, the ADC has asked expenses to be documented. At the February meeting of ADC ‘s Kekaha committee, committee members asked the KAA members in attendance for documentation of their maintenance costs. While most of the KAA had already submitted their expense reports to the ADC showing how much they paid to CEATECH and Gay & Robinson, the reports don’t detail how the money paid to CEATECH – KAA ‘s contractor to carry out all the maintenance work – was spent. CEATECH had not submitted its expense report and was not present at the February meeting.

“The board members were asking for documentation,” Lee says. “They said, ‘We can approve the expenses, but we want to see where the money went.’ The board was saying, ‘If you don’t have the documents this time around, fine. But beyond April 1, we’re not going to deduct expenses without them.'”

— Teresa Dawson

Volume 14, Number 10 April 2004