Isle milk industry
to link prices to
California’s

Whether that will translate
to consumer help is unknown

By Gordon Y.K. Pang
Star-Bulletin

Tying Oahu's milk prices to those in California will make it easier for the dairy industry to compete with its mainland counterparts.

That was the general consensus after the state Board of Agriculture yesterday tentatively approved a plan to have local milk processors pay Oahu producers according to wholesale prices in Northern California.

Industry officials say it's too soon to say whether the new formula will affect consumer prices.

If the change were to take effect today, it could translate to about a 20-cent per gallon price drop. Locally, a gallon of milk costs $4 to $5.

But the formula wouldn't take effect for another six months or so, after a series of public hearings and approval from Gov. Ben Cayetano.

The 20-cent drop also assumes processors would choose to pass the savings on to consumers.

"The milk price formula enables Hawaii's milk industry to quickly respond to rapidly changing market conditions that affect competitive milk pricing," said Glenn Muranaka, Meadow Gold president. "This ability to reflect the up-and-down changes is important to the economic well-being of the daily producers, processors and consumers."

Initially, said Agriculture Board Chairman James Nakatani, "I don't think (shoppers) are going to see much difference in the retail market."

But if milk prices drop in California, they would drop in Hawaii, too, he said.

That's the gamble Oahu's eight milk farms took by working with the processors to propose the plan. Too big a drop could force one or more producers to go out of business, said Dave Kugel of the Fresh Milk Industry, which represents all milk farms.

Currently, processors pay local producers a minimum of $27.20 per 100 pounds of raw milk. That minimum is set by the Agriculture Board, which makes changes based on production arguments by processors and farmers.

Under the proposed change, processors would pay a minimum of $12.20 per 100 gallons above the Northern California minimum price.

Per 100 gallons, that minimum is currently $13.23 -- so the Oahu minimum would be $25.43, or $1.77 less, than what local producers now receive.

"The $27.20 is nice but if you can't sell milk, you gotta put it down the drain," Kugel said of the tradeoff. "You gotta have business." The farmers agreed, he said, because the processors promised to buy all of their milk.

Allowing prices to reflect market conditions is essential now that nearly 40 percent of Hawaii's milk comes from the mainland, Kugel and others said.

"The encouraging part of this is that it's an agreement between the dairy farmers and the processors," Nakatani said. "They need each other."

He said the pricing formula also gives farmers an incentive to find more efficient ways of doing business.