Cannery's survival rides on trade decision
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By John Duchemin
Advertiser Staff Writer
Through stubbornness, luck, marketing and some timely government intervention, Maui Pineapple Co. has outlasted the death of the Hawai'i plantation economy by more than 20 years.
Eugene Tanner • The Honolulu Advertiser
But lately trade winds have brought ill news to Maui Pineapple, which operates the last remaining pineapple cannery in the state and employs about 1,000 agricultural and factory workers.
Les Richardson is in charge of Maui Pine's warehouse filled with cans of fruit ready to be labeled and shipped out. The cannery relies on cheaper steel from Japan.
Since 2000, profits have vanished, replaced with millions of dollars in losses each quarter. World pineapple prices have plunged to a historically low ebb as international competitors flood the market with cheap fruit from Thailand, Mexico and the Philippines.
And now, a U.S. trade decision threatens to drive the cannery out of business.
Federal trade officials have recommended tariffs on imported steel, including the tin-coated plate metal that Maui Pineapple orders from Japan to make cans.
If President Bush approves the tariffs, the hard-pressed Kahului cannery would probably have to close.
"If there are duties on our steel, that would probably knock us right out of the boxing ring," said Maui Pineapple President Doug Schenk.
That wouldn't mean the end of Maui Pineapple, however, which lately has shifted much of its product mix to the more profitable whole or fresh-cut pineapples. But the cannery's problems show why every other Hawai'i pineapple company either closed shop or switched to fresh fruit as the industry declined in the 1970s.
Once the world center for pineapple production and research, Hawai'i became less and less competitive as worker wages and benefits rose. Companies including Dole and Del Monte invested millions in efficient machinery, but found they could pay far less to grow and process pineapples in poorer countries.
"It didn't matter how efficient you were — it all comes down to the cost of labor," said David Gillespie, a former Dole Hawaii employee who helped manage Dole's budget in the 1970s. "There's nothing you can grow here that you can't grow elsewhere cheaper."
Eugene Tanner • The Honolulu Advertiser
Unions in Hawai'i were reluctant to accept lower wages in the face of foreign competition. Maui Pineapple employees belong to the International Longshore and Warehouse Union — the same union that helped pineapple workers statewide achieve relatively high salaries and benefits in the 1960s and early 1970s.
Maui Land and Pineapple Co. in Kahului, the parent of Maui Pineapple, is a public company controlled by Hawaii-born Steve Case, chairman of AOL-Time Warner.
On Maui, the average agricultural worker earned $28,000 per year in 2000, while the typical food-processing employee earned almost $31,000, according to data provided by the state Department of Labor and Industrial Relations.
In Thailand, by contrast, the average wage for agricultural workers is $608 per year, while manufacturing employees — a category including cannery workers — earn $1,644 per year, according to the Bank of Thailand.
Maui Pineapple has coped with the huge wage difference by attempting to establish a premium reputation — so that consumers pay more for "100% Made in Hawai'i" canned pineapple.
The company has also attempted to breed fruit with superior flavor. Schenk said those strategies have let the company charge a crucial few cents more per can.
But local prices of Maui Pineapple products reveal the company doesn't always command premium prices. Star Market, the sole local retail outlet for the cannery's Hawaiian Gold label, sells the brand for 79 cents per 8-ounce can — cheaper than Dole, which sells on the same shelf for 99 cents.
Wholesale market rough
On the wholesale market, the company must price competitively to land vital bulk contracts with restaurants, hotels and government departments, say agents at Royal Food Brokers, HFM and other wholesale companies.
For those contracts, a few pennies per can may make all the difference, said Dolly Advincula of Royal Food, Maui Pineapple's local broker.
With world prices trending downward for decades, Maui Pineapple has frequently been on life support. Company officials said the cannery has survived only because the U.S. government since 1995 has imposed penalties on Thai canned-pineapple producers that it found were unfairly "dumping" on the market — selling fruit at below-cost prices in an attempt to drive competitors out of business.
U.S. importers buying from those companies — which include Dole's Thai subsidiary and several other multinational producers — have been forced to pay duties of up to 56 percent.
Maui Pineapple's finances did improve after the 1995 government intervention. Between 1992 and 1995, the company posted revenues of $344 million and suffered losses of $20 million.
From 1996 through 1999, revenues of $378 million led to $19 million in profit, according to the financial statements of parent Maui Land & Pineapple Co., the public company controlled by Hawai'i-born Steve Case, chairman of AOL-Time Warner.
Since 1999, however, performance has deteriorated. Pineapple prices have taken a plunge, in part due to a huge upswing in production from the Philippines and other sources — but also because the government has gradually reduced the anti-dumping duties against Thai producers.
The duties, scheduled to last another four years, now range between zero and 25 percent.
In the past seven quarters, Maui Pineapple had revenues of $155 million and lost $7 million. The poor performance has wiped out much of the profit earned by sister company Kapalua Land Co., which has reaped millions from high-end residential land sales in West Maui.
It is in this context that Maui Pineapple is begging its protector, the U.S. government, to ease up on its protection of another struggling industry, American steel. The U.S. steel industry has been hammered by foreign competition, and prices recently dropped to a 20-year low. The government recommends worldwide tariffs on many imported steel products ranging from 20 to 40 percent of price.
Tariff decision due March 4
The steel issue is complex and far-reaching, and Capitol Hill observers said President Bush hasn't indicated how he'll rule. But Steve Francisco, a lobbyist for the pro-tariff United Steel Workers, said the Bush administration, having initiated the steel tariff inquiry, at least seems in favor of the idea of protecting the steel industry.
Bush has until March 4 to rule on the tariffs, said John Greer, a spokesman at the U.S. International Trade Commission.
Schenk hopes that Maui Pineapple can win an exclusion to the tariffs — or that President Bush eliminates the penalties.
He said the cannery will survive only if it can continue to get cheap Japanese steel for its cans.
Maui Pineapple can order bulk shipments of huge rolls of steel from Japan, but not from America — tighter U.S. shipping safety rules mean only one steel roll can come on each boat.
The higher shipping costs mean U.S. steel would be even more expensive to Maui Pineapple than Japanese steel with the tariffs tacked on, Schenk said.
Schenk said Maui Pineapple will hold on to the cannery as long as possible. The company doesn't plan on following its predecessors overseas, and Schenk hopes prices will stabilize this year — at least long enough the company can catch its breath.
"We don't want to be in the Philippines or Thailand. We want to be in Maui," he said. "We're not about closing operations down."
