The New Leeward Food Pyramid: Farmers, Middlemen, and Landowners

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The argument of the leeward parties centers on the promise of diversified agriculture to turn the central O`ahu plains into a horn of plenty for local markets. Use of the windward water in support of this enterprise, leeward attorneys argued, was “reasonable and beneficial” — and thus satisfied one of the key criteria for permitted water use set by the state Water Code.

According to Richard Bowen, a University of Hawai`i professor of agricultural economics and a paid witness for the leeward parties, diversified agriculture on some 6,600 acres of leeward lands would generate $50 million a year in produce sales and 970 jobs. When indirect and induced economic “multipliers” were factored in, Bowen testified, diversified agriculture on O`ahu would add about $100 million a year to the gross state product.

“For every 1 million gallons a day of ditch water,” Bowen said, “I estimate that 4.4 million dollars in farm output, 1.9 million dollars in personal income, and 65 full-time jobs will be created.” This would not only be a boon to the state, but would actually reduce “significantly” the state’s reliance on imported produce. All this was contingent, however, on the continued availability of low-cost Waiahole water, he added.

Sandwiches and Censorship

To demonstrate further this potential, the leeward landowners brought forward as witnesses the farmers and ranchers that had obtained licenses or leases to use land that had once been, is now, or could be irrigated by Waiahole water.

When pressed under cross examination for details of their licenses and leases, however, the tenants proved shy witnesses indeed. The documents were produced only after the Water Commission agreed with the windward farmers that terms of the farmers’ tenancy did have relevance to the claims of leeward landowners to have a long-term commitment to keeping the land in agricultural use.

What those leases and licenses revealed, across the board, was the reservation of the landowner to withdraw any of the land for uses other than agricultural ones. Should the lessee protest the intended use for the withdrawn lands, the lessee would be responsible for recalculated back rents at many times more than the regular rates.

A provision in the lease of Larry Jefts for use of Campbell Estate land is typical:

“Lessee [Jefts] understands and acknowledges that it is anticipated that during the term of this Lease, certain portions of the land demised hereunder may be needed by Lessors for development for other uses and such portions may be withdrawn for these uses. Such development … may necessitate withdrawal of areas under this lease or relocation or construction of roads, utilities, and water facilities. Lessee agrees to support and not to oppose, and to cooperate fully with Lessors in the planning and implementation of such development and withdrawal…. As a specific consideration, Lessee has been given two years of rent abatement under this Lease and Lessor has agreed to reimburse Lessee for certain unamortized capital expenses upon Lessors’ withdrawal of lands.”

Most leases or licenses were for periods from 10 to 15 years. Some farmers said this suited their interests well. Others testified that they had wanted longer tenures, but were not able to obtain them.

Many of the lessees are not themselves farming, but are subletting their leased land to the people who actually work the earth. Zuene Baccam, a Laotian immigrant, is one such tenant. According to his testimony to the Water Commission, Baccam has a lease from Dole/Castle & Cooke that expires in June 2005. He has divided his 97 acres into 29 plots, ranging in size from three to five acres. Those plots are rented to farmers, most of them Laotian, who raise oriental vegetables, herbs, cucumbers, tomatoes, and other produce.

According to Baccam, he pays $400 per acre per year to Dole, which adds up to an annual rent of $38,800. His tenant farmers pay him $400 per plot per month, however, which translates into $120,000 per year. Baccam must also pay $48,000 a year, he said, on debt that he assumed from the previous tenant, Hawai`i Agricultural Operations, which went out of business in 1987. After deducting property tax of about $2,400 a year, Baccam would appear to be left with a “sandwich profit” of more than $30,000 a year.

Baccam stated he charges farmers for water exactly what Dole charges him: $254 per million gallons, or 25.4 cents per thousand gallons.

Other tenants of Dole have similar arrangements with small farmers. Hawaiian Foliage and Landscape, for example, has a lease of 468 acres of Dole land that runs through the year 2007. Of that, it subleases 147 acres to Wally Nitta, who in turn rents the land out to about 100 farmers, whom he described as being primarily Filipino. Nitta charges his tenants $100 per acre per month ($1200 a year), but pays Hawaiian Foliage $50 per acre per month ($600 a year). Hawaiian Foliage has an even greater margin of profit. While it gets $600 a year per acre from Nitta, it pays Dole just $12.56 an acre per year, according to testimony of Sean Keahi, its manager. (Keahi added, however, that the rental increased 45 percent every three years until the lease expires.)

Nitta told the Water Commission he received no profit on the Waiahole water delivered to the farmers. Like Baccam, he merely passed on to them his cost. Unlike Baccam, whose cost was 25.4 cents per thousand gallons, Nitta’s cost was 30 cents per thousand gallons.

The Break Point?

Most of the lessees or licensees have agreements that allow them to walk if the price of water rises above a certain point — usually 47 or 50 cents per thousand gallons. Farmers repeatedly testified that if water became this expensive, it would make their enterprises unprofitable.

This claim was questioned by attorneys for the windward parties. When they asked whether the farmers had done any kind of cost analysis to justify such statements, the response was invariably “no.”

And, according to an agricultural economist who testified for the windward parties, were they to undertake such an analysis, they would probably find that unless water costs rose much, much higher, water would continue to be a relatively small percentage of the overall costs borne by farmers.

The economist, David Sunding, is associate director of the Center for Sustainable Resource Development at the University of California at Berkeley. “The basic point I would like to make,” Sundig said in testimony to the Water Commission, “is that increases in the price of water from, say, 35 cents per thousand gallons to 70 cents, or even above $1, have very little impact on the ultimate success probability of Kunia agriculture, for the simple reason that water is a very small share of the cost of production here.”

Posing a much greater risk to success are such factors as pests, climatic conditions, and market conditions, Sundig said. Moreover, the present 35 cents per thousand gallon rate “is not enough to make [farmers] use water efficiently.”

“I would argue that 35 cents per 1,000 gallons is not enough of an incentive to encourage farmers in Kunia to recognize the true scarcity value of water. That may cover WIC’s cost, but that’s not sufficient,” Sunding testified.

Inter-Island Strife

A recurring theme in discussions of expanded diversified agricultural production in central O`ahu was concern it would undercut neighbor island farmers. Buddy Nobriga, a member of the Water Commission representing Maui, was one of the first to raise this prospect.

In response to the claim of an attorney for one of the leeward parties that farmers could not afford to pay 66 cents per thousand gallons for pumped groundwater, Nobriga asked: “What in the devil is going to happen to the Maui farmers that pay $1.35 per thousand to compete in this market?”

Already, Nobriga said, cabbage growers in Kula had seen their markets disappear as Kunia-grown cabbage became available. Sunding, the economist, pointed out that a 1988 study done for the state Department of Business, Economic Development and Tourism reached much the same conclusion that increased agricultural production on O`ahu could harm neighbor island farmers.

Sunding’s own analysis showed, he said, “that really the net benefits to the state’s economy as a whole might be quite modest… [W]hat you will have really is more a reallocation of agriculture from one island to another, or from one region to another, than an increase in the size of the economic pie, right? This is more a distribution question than it is an efficiency question.”

A closely related point was raised by the windward parties’ attorneys: Low water costs increased the desirability of leeward landowners’ property — and its revenue-generating potential as well. If the cost of water were to rise, most farmers testified, they would probably try to renegotiate their lease rents downward. In no case, however, did any witness — farmer, expert economist, or landowner — testifying on behalf of the leeward parties explain how they had arrived at the conclusion that diversified agriculture could not be profitable if water cost more than 50 cents per thousand gallons.

Experience

Two farmers were the stars of the leeward landowners’ case: Larry Jefts and Alec Sou. Jefts had his start in Hawai`i growing watermelons on Moloka`i. He was so successful in that venture that today, almost all of the watermelons consumed in Hawai`i are locally grown (and probably grown by Jefts as well).

Jefts’ testimony, as well as that of William Paty, a representative of the Robinson Estate, demolished any lingering hope that local diversified agriculture would result in lower market prices for consumers. In addition to his lease with Campbell Estate, Jefts holds a license to farm about 862 acres of land owned by the Robinson Estate. According to Paty, Jefts grows about 4 million pounds of the 15 million pounds of tomatoes that Hawai`i consumes annually. “What he does, he goes to Foodland and he goes to Safeway. He quotes them the mainland price plus Matson freight.”

Alec Sou heads up a family farm venture known as Aloun Farms. Aloun Farms had been based in Wai`anae up until the time of sugar’s demise in central O`ahu. At that time, it entered into agreements with Nihonkai and the Robinson Estate for use of their lands for diversified agriculture.

Leeward parties held up Aloun Farms as one of the success stories of diversified agriculture. Yet under questioning by Department of Health Director Lawrence Miike, one of the members of the Water Commission, Alec Sou acknowledged that the Wai`anae operation would be winding down even if the central O`ahu opportunities hadn’t arisen. “We were working on soil that’s heavily tilled. We are close to 4 and a half, 5 time turnovers [crops per year]. We have been on some of those soils for close to 10 years. If we didn’t move on, productivity was drastically and quickly decreasing.”

But, Sou added, “With the amount of land in Kunia, I think we will be more responsible as a farmer to our soil and to have, at most we are looking at target one and a half turnovers [crops per year]. Instead of depleting, we can soil amendment and bring out the quality of soil from time to time, just as the sugar did for many years.”

Volume 7, Number 2 August 1996