CINDY ELLEN RUSSELL / CRUSSELL@STARBULLETIN.COM The Foremost Diaries building on Kamehameha Highway, with its cow on the lawn, has been an isle fixture for decades.

Foremost Dairies
gives up

Meadow Gold achieves a
monopoly in Hawaii as its
struggling competitor
waves the white flag

Foremost Dairies-Hawaii said yesterday that the temporary shutdown of its milk processing and distribution operations would become permanent, after determining that its aging Kalihi manufacturing plant was beyond salvage.

Foremost Dairies-Hawaii A glance at the company: >> Founded 52 years ago. >> Owned by FH Acquisition LLC, which purchased it in January from House Foods Hawaii Corp., a division of an Osaka, Japan-based firm. >> Manufactures and distributes milk, yogurt, ice cream and other dairy products. >> 140 employees before its plant shut down Aug. 24. >> Plans to cease operations at its Kalihi facility Nov. 13.

The move will result in layoffs of 120 workers and puts Meadow Gold Dairies in sole control of processing Hawaii's milk, which has steadily increased in price this year.

Foremost had temporarily closed the 1950s-era plant on Aug. 24 to gauge whether it could fix "serious environmental issues" at the facility, but said yesterday that its worst fears have been confirmed.

"It is very disappointing," said Bahman Sadeghi, manager of FH Acquisitions LLC, lead investor in a group that bought Foremost Dairies-Hawaii in January.

"Since purchasing the company, we have put in close to $2 million to try to turn around the company. Unfortunately, we did not realize the extent of the deteriorated condition of the equipment and infrastructure and lack the estimated capital it will take to reconstruct it," he said in a statement released by Foremost.

The shutdown is to be completed by Nov. 13.

However, Sadeghi said the company is exploring ways of keeping the Foremost brand name alive, either by importing dairy products from the mainland and putting the Foremost label them or working with Meadow Gold Dairies to do the same locally.

Since the temporary shutdown began, Foremost has relied on Meadow Gold to process and package milk and other dairy products with the Foremost name.

"We have appreciated the strong loyalty from local customers and hope to be able to keep the brand alive in Hawaii," Sadeghi said.

The company is in negotiations with Teamsters Local 996 on devising severance packages for Foremost employees, but company spokeswoman Lynette Lo Tom said it is "possible" some of those jobs could be salvaged if Foremost manages to rise from the ashes in a new form.

Foremost also said it is "in dispute" with its previous owner, Japanese-based House Foods Corp., alleging that House Foods did not disclose poor conditions at the plant that the new owners also failed to discover when doing their due diligence.

Tom said the company had received an written order from the Health Department to stop using three deteriorating storage tanks and that replacing them would be "hugely expensive" and involve demolishing a section of the plant.

She said the company was consulting with attorneys on possible action against House Foods, and the company declined to provide a copy of the Health Department order.

However, the state Health Department's milk inspector said he saw no reason to shut down the plant based on quality or environmental issues.

Milk inspector Peter Oshiro said the storage tanks in question were small, displayed only exterior corrosion and were still usable and that Foremost had plenty of other storage capacity anyway.

"I never saw anything integral to stopping production of the plant," Oshiro said. "It sounds like they just wanted out."

Foremost officials were not available for further comment. But Sadeghi, who also owns Island Dairy Inc. on the Big Island as well as California-based food transporter Hawaii Intermodal Tank Transport, indicated in his statement a desire to cut his losses, citing a "lack of capital and uncertainty of the future."

Meadow Gold issued a statement on the demise of its rival, saying it was "saddened" by the loss of jobs and it would "do everything feasible to meet the needs of Hawaii's milk consumers, including our schools, with the highest-quality, most economical dairy products."

Prices of milk have climbed steadily this year due to a number of factors including lower production in California, from which Hawaii imports much of its milk. Around half of Hawaii's milk comes from the mainland.

Foremost's demise -- and Meadow Gold's resulting milk-processing monopoly -- could worsen the sticker shock for consumers, a Department of Agriculture specialist said.

"When you only have one player on the field, it's always a precarious situation," said Steve Dulce, economic development specialist in the department's milk control section.

"If something happens to the company -- if there's a major equipment failure or a shipping strike -- consumers will feel that," he said.