The Brancatelli File



August 5, 1984 -- Going strictly by the numbers, it's hard to understand why Hawaiians still fret over the flagging fortunes of the state's agriculture industry. To most outsiders, agriculture in Hawaii looks to be a no-win proposition and a relic of Hawaii's pre-statehood "plantation" mentality.

This year's total sales from sugar, pineapple and all the state's other crops will probably only be about $750 million. Tourism will generate six times that much revenue; military spending in Hawaii in 1984 is likely to be three times larger than agribusiness revenues. Less than a fifth of the almost two million acres of land zoned for agriculture in Hawaii will actually be planted in crops this year. The world market for sugar is shrinking and there are huge surpluses; demand for processed pineapple is flat and the fresh pineapple market is hardly growing. Hawaii's extremely efficient production methods and hospitable climate are more than offset by its prohibitive transportation and labor costs. The Del Monte division of R. J. Reynolds has dismantled Hawaii's second-largest pineapple operation and moved away. Diversified agricultural produce sales, once touted as a panacea, are only growing 1.3 percent per year in real dollars after two decades of effort.

But going strictly by the numbers when it comes to Hawaiian agriculture is a mistake. Hawaii's reliance on agribusiness is as much psychic as economic. There is always hope in Hawaii for a better agricultural future. These days, hope's name is Francis S. "Frannie" Morgan.

"Hell no, I don't have a magic wand. But I care about Hawaii and I'm not going to stop working the land. Agriculture in Hawaii is no dead issue," says the balding, roundish 65-year-old gentleman who is now the president, chief executive officer, and up-to-his-ears-in-hock owner of the Hamakua Sugar Company, the second-largest plantation.

A fifth-generation Hawaiian--his great-great-grandfather built Oahu's first sugar plantation in 1862--Frannie Morgan became a state hero earlier this year by buying Hamakua for $70 million. At a time when most businessmen retire, Morgan secured a $61 million loan from a federal land bank and hocked all his personal holdings to make the deal. At a time when most of Hawaii's sugar plantations are scaling back or closing, Morgan insists he can rejuvenate Hamakua's 35,000-acre plantation, its two mills, and its 16-mile highway.

"Hawaii has always been about farming, and sugar and pineapples," says Morgan, who runs Hamakua out of a private house on the cool, rainy side of the Big Island of Hawaii. "I want Hawaii to continue to be about those things. I've got a basic commitment to survive in the sugar business. The thousand people who work here have a basic commitment to survive in the sugar business. Part of the problem with Hawaiian agriculture has been that we lost that basic commitment because all the plantations were owned by the big companies who eventually diversified into other things. When you're diversified, you've got choices. But when you're Frannie Morgan, you succeed in sugar because you have nothing else and you'll lose your shirt if you don't succeed in sugar."

David A. Heenan agrees with Morgan. He'd better. He's president and CEO of Theo. H. Davies, the old-line "Big Five" firm that sold Hamakua to Morgan. "We've got to work to rekindle the agricultural entrepreneur in Hawaii," says Heenan. "Frannie Morgan is the kind of man we need running the business in Hawaii now. Agriculture can really be gangbusters in this state if we had a couple of dozen Frannie Morgans here. The state's agricultural base needs some sharp businessmen who'll throw some bucks at the industry and work to make it happen."

But for all the enthusiasm surrounding Frannie Morgan--everyone from Hawaii Gov. George Ariyoshi to the labor unions have applauded Morgan's gamble--the basic problems of Hawaiian agriculture remain intractable.

Sugar, which generated about $425 million of revenue and $1.5 million profit in Hawaii last year, is no longer the kingpin of Hawaiian economy or culture. A worldwide surplus of sugar has depressed the market; high-fructose corn syrup has severely reduced sugar's use in products like soft drinks. Sugar prices, once almost 45 cents a pound, have plummeted to the 6-to-8 cent range on world markets. U.S. sugar prices are federally supported, but the subsidies may end as early as next year.

"Half our plantations failed to make a profit in 1983," says Robert J. Pfeiffer, chairman of the Hawaiian Sugar Planters' Association. "The half that did make a profit put the industry in the black for the first time in three years…[that's] only the third [profit] in the past eight years. It should be apparent, therefore, that this industry continues to face a major crisis."

Pineapples major problems are competition and demand. Too much of the former and not enough of the latter. Growing pineapple in Hawaii, where farm workers are protected by a strong union, is five or six times more expensive than growing pineapple in low-cost, non-union places such as Thailand or Costa Rica. And consumer demand for pineapple products isn't growing. Sales of fresh and processed pineapple are likely to net only about $175 million this year; sales in the late 1970s were more than $225 million. And while Hawaii produced more than a million tons of pineapple annually during the mid-1960s, current production has been slashed by more than one-third.

"The operative word for sugar and pineapple in Hawaii is decline," admits Henry A. Walker Jr., the chairman of Amfac. "We'll have declining profits, declining production and declining acreage. You can grow sugar or pineapple most anywhere in the world except Siberia. And almost everyplace in the world is cheaper to grow than Hawaii."

"Sugar and pineapple will never be important to Hawaii again, not in the same way they were important when they were the kings of the Islands," adds Frank J. Manaut, the chairman and CEO of Bank of Hawaii, the state's largest financial institution. "The question we now have to ask ourselves is 'What do we do with the land? What takes the place of sugar and pineapple?' When half your state is zoned for agriculture, that's a major social decision."

Making that decision has been excruciatingly difficult for Hawaii. Despite the state's declining sugar and pineapple base, strict land-use laws and strong farm-union lobbying have kept most of the land zoned for agriculture. But those forces haven't stimulated any new plantings or new crops. Most of Hawaii's farm lands lie fallow.

"The government," suggests Amfac's Walker, "is only now coming to realize that you can't legislate an agricultural society no matter how narrowly you frame the laws. You may keep the land in agriculture by law, but you can't force people to grow crops unless they can make a profit."

Diversified agriculture, the local catch-phrase for any farm product that isn't sugar or pineapple, was supposed to replace sugar and pineapple and stabilize Hawaii agriculture. It hasn't happened. The problem with diversified agriculture hasn't been finding new crops that will grow in Hawaii. Local farmers have successfully planted mangos, avocados, papaya and other crops. The problem with diversified agriculture has been developing crops Hawaii can grow profitably given the state's high labor costs and disadvantageous location.

"In case people have forgotten, there's a moat around this place called the Pacific Ocean," says Warren Haight, vice-president Hawaii of Castle & Cooke, the parent company of the Dole, Bud of California and Bumble Bee food brands. "Transportation costs for anything we grow here are horrendous no matter how efficiently we produce anything. A lettuce grower in California can move his crops around a lot more quickly than a Hawaiian farmer can. You add the extra transportation costs to our high labor costs and Hawaii is essentially priced out of any market."

But even if sales of diversified agricultural products suddenly were to bloom--and no one really expects that to happen--Hawaii remains saddled with agricultural land that produces no income. The state government and many Hawaiian business leaders want to turn some of that farm land over to commercial developments aimed at attracting high-tech businesses.

Not traditionally known for its business boosterism, the state government has taken a surprisingly active role in talking up the feasibility of high-tech developments in Hawaii. "High-tech and research and development projects are things we can do here under the right condition," says Kent M. Keith, director of the state's Department of Planning and Economic Development. "It's the kind of environmentally sound light industry that makes sense."

There are several types of high-tech businesses that regularly are mentioned when the topic surfaces in Hawaii. The state's farming heritage makes it a natural for agricultural research facilities. The clean air makes aeronautical and astronomical operations a possibility. Marine biology and other aquatic industries are also a natural.

"Hawaii could never develop into a Silicon Valley or Route 128 in Massachusetts," says Heenan of Theo. Davies, "But on a modest, highly selective basis, there is opportunity. This is a great place to live and that appeals to high-tech entrepreneurs. There is an excellent labor pool here, too."

Castle & Cooke has been especially eager to push high-tech development schemes. It is hoping to build a 250-acre high-tech park on pineapple land on Oahu. The proposal is opposed by some factions of the state's agricultural block, but Haight is convinced the project is feasible.

"We can't build a research and development colossus overnight, but we can do it over the next five or six years," he says. "We've got to make a long-term commitment in order to attract high-tech business here. It takes a leap of faith."

But not everyone in Hawaii can make that leap of faith. Many critics believe the state is an unlikely site for a high-tech community. They cite a host of negative factors, especially the fact that Hawaii has only one major university. "Great R&D and high-tech centers have developed only in areas where there are several universities already in place churning out knowledgeable workers," says Amfac's Walker. "Hawaii simply doesn't have that kind of educational infrastructure."

But Haight remains "unquestionably bullish" about Hawaii's long-term technology prospects. He points to Intellect, a high-tech military goods manufacturer that started in Hawaii and now employs several hundred workers in the state. Castle & Cooke recently purchased 20 percent of Intellect in order to ensure that the firm doesn't leave Hawaii before the high-tech park is completed. And he also points to a voluminous report from SRI International, the California research firm. It concluded that Hawaii could develop a high-tech park given the proper government cooperation and business incentives.

"The folks who say we can't be a factor in high-technology businesses reflect the old plantation mentality that says everybody in Hawaii is too dumb to do anything except farming," says Haight. "Well, that is baloney. We can do it here. It's in our own enlightened self-interest to make sure we can do it here."

This column originally appeared in Frequent Flyer magazine.

Copyright © 1984-2010 by Joe Brancatelli. All rights reserved.