Mauiâ€™s Sugar Future

The economic struggles of Maui have been no secret. Businesses are closing down, citizens are losing their jobs, and real estate prices have fallen drastically. Now, in one more blow to the struggling economy, sugar producers are debating whether there is a future for growing sugar on Maui.

Hawaiian Commercial & Sugar Co. (HC&S) currently employs around 600 Maui residents but has recently fallen on hard times. While the company has been a mainstay on Maui for more than a hundred years, their 2009 third quarter results were dismal and a comprehensive review of sugar operations was set in motion.

At the center of the issue appears to be water. The company is waiting for rulings by the State of Hawaii Commission on Water Resource Management regarding water allocations in East and West Maui which are set to be handed down in early 2010. A favorable resolution is critical to continued sugar operations for HC&S.

Expecting more than $30 million in operating losses in 2009, HC&S has a difficult decision ahead of them. Fortunately, the company is taking a more optimistic approach by basing their decision on their view of the future rather than past financial problems. Recent droughts have brought declining yields making the water issue very important.

Employees are concerned. They are hoping that HC&S will stay in the sugar business long enough to transition into more profitable markets like alternative energy as the future of sugar production on Maui is not promising. There are more than a hundred countries around the world producing sugar; most of them with cheaper land and labor than the United States.

The price of sugar actually rose last year, because of poor weather in countries like Brazil and India which are major sugar-producing players. Unfortunately, HC&S were unable to capitalize on these increased sugar prices because they had sold off their sugar supplies before the spike.

Plus, Maui has been suffering from a serious drought for the last 3 years. During its best year, HC&S produced 227,800 tons but because of the drought were only able to produce 125,000 tons last year. Some experts are pointing out that the commodities often vary drastically from year to year with regards to production. But the concern for HC&S is that they would need to have 4 record years of profit in order to climb out of their current financial hole.

Still, the parent company of HC&S relies very little on farming for profit. Alexander and Baldwin (A&B) credited HC&S with a half a billion in sales which is around 12 per cent of their corporate assets. The trend for A&B in the past has been to sell struggling assets.

At the moment, agriculture accounts for a meager 7 per cent of A&B assets and HC&S is unlikely to positively affect their profits. Even in their best years, HC&S had little impact on A&Bâ€™s bottom line while management efforts to improve profitability require a lot of resources.

As such, the argument for selling off HC&S to an owner who would concentrate on sugar production is appealing. But in this case, the land itself becomes a focal point. Part of HC&S sugar plantation land could be developed into homes or commercial property, as has been the trend for A&B. Yet, there is little market for undeveloped land in Maui at the moment. A&B seems to be committed to maintaining their farming assets. Intending to keep 37,000 acres of Maui sugar land, the company is looking into alternative ways of profiting from farming. Energy alternatives like ethanol is one of the ways they hope to make their land profitable.

Again, we return to the issue of water. A&B is willing to invest hundreds of millions of dollars in developing ethanol and other energy alternatives but only if theyâ€™re guaranteed a water source. Environmentalists have been petitioning in recent years to reduce the amount of water available to plantations in order to maintain water flow in streams and lakes.

While theyâ€™re not trying to put HC&S out of business, they are also concerned about sustainable fresh water sources on Maui. Currently, the water commission has decided that 13 million gallons of water per day should be saved for streams but is considering raising that amount. Meanwhile, HC&S is asking for a minimum of 13 million gallons of water per day.

Summer droughts have been reducing the amount of available water. The crisis point for HC&S is 20 million gallons of water in the East Maui watershed. The county has access to 7 million gallons leaving exactly what HC&S needs to continue operations. Clearly, the likelihood that the watershed will drop below that level means HC&S is left out in the cold.

So water is a critical issue in maintaining operations and poor weather may be enough to decide the future of sugar on Maui.

Photo Credit: Bret Arnett