Mac nut firms
plan to merge
Mauna Loa will control about
Questions and answers
85% of the state's crop with the
buyout of MacFarms of Hawaii
Hawaii's largest marketer and processor of macadamia nuts is buying its chief competitor, gaining control of about 85 percent of a major state crop.
Mauna Loa Macadamia Nut Holdings Inc., the parent of Mauna Loa Macadamia Nut Corp., said an affiliate will buy the processing and marketing assets of Big Island-based MacFarms of Hawaii LLC for an undisclosed price. The agreement also calls for the affiliate, MacFH Inc., to sign an agricultural lease with Kapua Orchard Estates LLC covering 3,917 acres of macadamia orchards on the Big Island.
The consolidation gives Mauna Loa control of macadamia nuts from MacFarms, the second-largest macadamia grower in the state. It already has an exclusive agreement to purchase all nuts from ML Macadamia Orchards LP, the top grower with about 40 percent of the state's crop in the 2004 fiscal year, and buys from other growers.
Mauna Loa President Darrell Askey said the Irvine, Calif.-based company had been growing at 25 percent annually in the last three years and that the deal would help it meet increasing demand for its products.
"It will benefit Hawaii's macadamia nut industry by making the state more competitive in the worldwide macadamia nut market and assist in preserving Hawaii's agricultural base," he said.
But David Rietow, president of the Hawaii Macadamia Nut Association, said it is too early to tell if the deal will benefit the state's other 650 growers, most of them small operations on the Big Island.
"I'm cautious to say whether it's good or bad," said Rietow, president of Agro Resources Inc., an agricultural management company on the Big Island. "When you end up with a semimonopoly, there are problems that surface that aren't apparent going in. Once things are finalized and once they start to function, we'll see how it works for the industry."
Mauna Loa spokeswoman Cynthia Quinn took issue with the monopoly reference because she said the state's market is global. Hawaii, which primarily competes with Australia, South Africa and South America, has just less than 25 percent of the worldwide macadamia nut market. In 1980, Hawaii's share was about 90 percent worldwide.
"A monopoly suggests you're owning something," she said, "but we're not going to own any land in Hawaii. We're leasing so we can get the crops that MacFarms has. We still need to buy nuts from Hawaii growers, and we'll need to work hard with those growers to ensure a future supply of nuts.
"The only thing that makes us unique is the fact that Mauna Loa has this very strong brand. That's how we distinguish our macadamia nuts from the rest of the world."
Mauna Loa said the merger will create a combined work force of 450 permanent and seasonal workers from the two companies -- 300 from Mauna Loa and 150 from MacFarms. Mauna Loa also said the transaction will allow it to increase production and add between 15 and 25 jobs in Hilo to handle the packing for the increased volume of macadamia nut retail products.
The acquirer said that all existing MacFarms orchard and production employees would be offered employment and that Mauna Loa would increase its marketing budget "significantly" to almost $10 million in 2005.
Dennis Simonis, president and chief operating officer of ML Macadamia, said the deal is probably beneficial for Mauna Loa because it increases Mauna Loa's nut supply. But he is not sure yet how it might affect Hawaii's growers and consumers.
"It does limit competition," Simonis said. "They've basically acquired the No. 2 brand and the second-largest processor, so consumers will have few choices, and I think there are fewer choices for the growers, too."
MacFarms General Manager Hilary Brown did not return a telephone call seeking comment.
Quinn said no price increases are anticipated because of the merger, which is expected to close within the next 60 days. Mauna Loa purchased MacFarms from Tennessee-based Sparco Management and its affiliates.
"This truly is an investment in the Hawaii macadamia nut industry," she said. "We have a value, which is the brand."
Hawaii's macadamia nut crop produced 53 million pounds net, wet-in-shell, in the 2004 fiscal year that ended June 30, matching its output from the previous fiscal year, according to the Hawaii Agricultural Statistics Service.
Rietow said he can see the deal playing out in two ways.
"On the bright side, it presents a very strong, solid, unified force that, if managed responsibly, can be a very strong backbone for the Hawaii industry," he said. "If managed irresponsibly, it could negatively affect the grower prices."
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In a nutshell
Some questions and answers about the purchase agreement by Mauna Loa Macadamia Nut Holdings Inc. to buy MacFarms of Hawaii LLC.
Question: Will this merger increase prices for packaged macadamia nuts?
Answer: No price increases are anticipated.
Q: Will this merger force Hawaii's growers to accept lower prices?
A: The combined company said it is committed to Hawaii's growers and will have the ability to more broadly and aggressively market Hawaiian macadamia nuts, thus creating greater demand.
Q: How many employees will the combined company hire on the Big Island, and in what capacity?
A: Mauna Loa expects to add between 15 and 25 workers, including positions in manufacturing and seasonal occupations such as packaging and shipping, as well as two or three supervisors. All existing MacFarms orchard and production employees will be offered employment. The combined company will have about 450 combined permanent and seasonal workers.
Source: Mauna Loa Macadamia Nut Holdings Inc.