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The Honolulu Advertiser
Posted on: Sunday, January 21, 2007

Outsourcing Hawai'i's school milk

By Sean Hao
Advertiser Staff Writer

At Queen Ka'ahumanu Elementary School, food service manager Shawn Fonseca set up milk for lunch on Thursday. The school has up to 1,300 cartons a day delivered, though it usually uses about 800.

RICHARD AMBO | The Honolulu Advertiser

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Meadow Gold milk is part of school lunches. But now the local product has a rival in bidding for the next state contract.

GREGORY YAMAMOTO | The Honolulu Advertiser

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DAIRY DECLINE

Hawai'i growing more dependent on the Mainland for milk:

Milk production in Hawai'i in the first 11 months of last year: 51.8 million pounds

Change in milk production from the same period a year ago: down 20 percent

Portion of milk consumed in Hawai'i that is produced locally: less than one-third

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Locally-processed milk has been fed to Hawai'i's schoolchildren for decades in an arrangement that provides kids with fresh milk while giving local dairies a guaranteed market.

It's a relationship that might end this summer as state officials open bidding on the school milk contract to Mainland providers.

The change comes due to a decision that the public schools can no longer provide preferential treatment for Hawai'i's sole milk processor, Meadow Gold Dairies, which currently supplies milk to schools. That opens the door to Honolulu-based Cornerstone Dairy Distributors, which wants to import packaged Mainland milk for public schools.

The state Department of Education plans to pick a milk vendor by July. It's a decision that raises concerns about milk freshness and food security. It's also a decision that could have a major impact on Hawai'i's milk industry, which is already in steep decline.

"If we don't ... (protect the local milk industry) now and it's the demise of the industry, we will be solely dependent on imported milk, and everything that comes with that," said Jeri Kahana, commodities branch manager for the state Department of Agriculture.

Meadow Gold president and general manager Glenn Muranaka said he is not opposed to selling Mainland milk at public schools as long as the schools continue to get kids in the habit of drinking milk.

"The primary issue for the DOE should be to emphasize increasing the consumption of wholesome products by schoolchildren while in school and reversing decades-old trends of schoolchildren switching from dairy products to soft drinks," Muranaka said in an e-mail. "We are certainly not opposed to the Department of Education's exploration of allowing this product (imported milk) to be included in the bid process."

UNFAIRLY FAVORED

In previous years, there was no question that the DOE would always buy local milk. However, federal rules prevent such favoritism, according to state DOE officials. In recent years those rules have been used to benefit non-locally-produced goods, such as hamburger. Last year, Cornerstone Dairy complained that the state unfairly favored locally-produced milk when it sought to rebid a contract for public school milk.

That contract award, which was supposed to occur by the end of 2006, has been delayed while the state rewrites its request for bidders.

Among those planning to bid on the contract held by Meadow Gold is Cornerstone Dairy, which is owned by Edwin Kini, a former sales manager for Foremost Dairies-Hawaii.

Foremost was purchased by Meadow Gold in 2004, leaving the state with only one major milk processor. Kini's plan is to import ultra-high-temperature, or UHT, milk from Washington state. Also known as ultrapasteurized, such milk has a shelf life of about 40 days, about four times longer than the shelf life of milk processed under traditional lower-temperature pasteurization techniques.

That leaves ample time for the milk to be imported to Ho-nolulu, which takes about a week, and distributed to local schools while remaining fresh, Kini said. A decline of Hawai'i's milk industry means there's no longer enough milk produced in Hawai'i to supply the state's schools, he said.

High land, labor, feed and transportation costs coupled with environmental issues and urban encroachment are making it increasingly difficult for certain livestock operations to survive in Hawai'i. During the past two years, two out of five Big Island dairy farms have closed. On O'ahu, the number of dairy farms dipped from five in 1999 to two today, and one of those Pacific Dairy plans to shut down in June.

SHRINKING SUPPLY

That has led to a steady decline in milk production. Through November, Hawai'i's dairies produced 51.8 million pounds of milk, which was down 20 percent from the same period a year ago, according to the National Agricultural Statistics Service. November's production was down 22 percent to 3.9 million pounds. About 15 milliion pounds of milk are needed by schools statewide each year, according to the DOE.

Local milk production represents less than one-third of annual demand statewide. Only the Big Island produces enough milk to be self-sufficient.

"It's inevitable that you'll have to bring in milk from outside the state," Kini said. "To me it's an ideal time for Hawai'i to make that switch to a UHT product."

Ultrapasteurized milk is heated to higher temperatures than pasteurized milk. That removes more micro-organisms, which leads to a longer shelf life. However, that process also creates a different-tasting milk, at least among those with discerning palates.

People who drink milk often "will definitely notice the difference," Kini said. "But they usually prefer the taste of the UHT milk."

TASTE TESTING

Hawai'i would not be the first state to use ultrapasteurized milk in public schools. During the 2005-06 school year, Nebraska started serving ultrapasteurized milk, said Julia West, coordinator of the state's food distribution program. The state stopped the practice before the current school year because of the higher costs and limited availability of ultrapasteurized milk, she said.

The taste of ultrapasteurized milk was not an issue, West said.

"The taste is the same, if it is chilled," she said.

The Hawai'i DOE isn't yet convinced the state's children will accept ultrapasteurized milk. Glenna Owens, food services program manager for the agency, said ultrapasteurized milk will be tested by a panel of kids before any decision is made. Meadow Gold, which also plans to bid on the contract, already has milk that is approved for distribution in public schools.

Ultimately the state will choose the cheapest milk provider, Owens said.

"Bottom line, it does come down to cost, because on the specifications most likely both companies are similar," she said, referring to Meadow Gold and Cornerstone Dairy.

Whether the milk is produced or processed locally will not factor in the decision, Owens said. However, state officials acknowledged that a reliance on Mainland milk could result in shortages if there is a strike or natural disaster that disrupts shipping.

"If for some reason there were a strike, then what happens?" asked Kees Kea, general manager and part owner of Island Dairy in 'Okala on the Big Island.

If there were advance warning of a shipping disruption, UHT milk could be stockpiled and remain viable for several weeks, Kini said.

However, it's still unclear whether UHT milk will be price-competitive with locally-produced milk.

"I think I can offer the state a unique product," Kini said. "Whether it's cost-effective enough, I don't know."

Reach Sean Hao at shao@honoluluadvertiser.com.