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The Honolulu Advertiser
Posted on: Sunday, November 15, 2009

HC&S, last of sugar cane plantations, on track toward more financial losses


by Andrew Gomes
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser

Hawaiian Commercial and Sugar Co. worker Elena Asuncion wraps herself up for protection from sun and dust.

Photos by CHRISTIE WILSON | The Honolulu Advertiser

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SUGAR IN THE RAW

Hawaiian Commercial & Sugar Co. is the exclusive supplier for the large light-brown turbinado sugar crystals in Sugar in the Raw brand packets commonly found in coffee shops and restaurants nationwide. HC&S also produces its own brand of turbinado sugar under the Maui Brand Sugar name.

HC&S established its food-grade line of sugar about 20 years ago, and made a big leap with distribution in 2000 with the Sugar in the Raw supply agreement. The next year, 4 percent of HC&S sugar, or 8,848 tons, went to food-grade sales. Last year, food-grade sugar represented 19 percent, or 27,500 tons, of HC&S production.

Food-grade sugar commands higher prices than the unrefined, raw sugar Hawaii plantations including HC&S sold to California refinery and distributor C&H Sugar. But producing a food-grade product required significant investment in special equipment.

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Hawaii news photo - The Honolulu Advertiser

HC&S workers prepare to hand-plant seed pieces in a Central Maui field used to grow new seed crops. Regular fields are planted by a mechanical planter that puts down seed pieces and irrigation tubing simultaneously.

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Hawaii news photo - The Honolulu Advertiser

A Claas mechanical sugar cane harvester cuts stalks into seed pieces that will be washed, treated and planted in new fields within a 24-hour period.

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Hawaii news photo - The Honolulu Advertiser

With the break in harvesting operations, the familiar smokestacks at the Puunene Mill are largely inactive.

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Name a Hawai'i sugar cane plantation Oahu Sugar, Pioneer Mill, Lhu'e Plantation, Hmkua Sugar, Hilo Coast Processing, Kekaha Sugar, Puna Sugar, Ka'u Sugar

All are gone, except for one: Hawaiian Commercial & Sugar Co.

After Gay & Robinson on Kaua'i shut down last month, HC&S on Maui became the last survivor in the industry that for almost a century dominated commerce in Hawai'i.

To last this long, HC&S has had many strengths. But considerable pressures facing the company today will influence just how much longer sugar remains a product of Hawai'i.

HC&S, a subsidiary of Alexander & Baldwin Inc., is on pace for a second consecutive year of heavy financial losses, while two long fights over rights to stream water are nearing decisions that could make it more difficult or outright infeasible for the company to stay in business.

Gay & Robinson's shutdown also eliminated the last partner in an industry association that had shared research, marketing and transportation costs, leaving HC&S to bear all expenses to advance Hawai'i sugarcane research, market the product and ship sugar to California for refining.

Recently though, there have been positive factors that bode well for HC&S, including better rainfall, a spike in sugar prices and improved plantation practices that the company says should increase sugar production and sales.

"We're making some great progress in turning the business around," said Christopher Benjamin, A&B's chief financial officer who took over command of HC&S in March.

If HC&S quits producing sugar, it would make Hawai'i the first state to cease commercial sugar production from sugar cane, according to the American Sugar Alliance.

Besides Hawai'i, sugar cane is cultivated in Florida, Texas and Louisiana. Sugarbeets, another U.S. source of sugar, are grown in 11 states, though two states, Texas and Ohio, exited that industry about a decade ago, the trade group said.

HC&S was established in 1882 as the product of 14 predecessor sugar plantations on Maui. For nearly all its history, it has been Hawai'i's largest sugar plantation by acreage and always produced the most sugar, which is a big reason HC&S didn't fold as rising costs, weak prices and other factors culled the industry over the past four decades.

35,000 ACRES

Today, HC&S produces 4 percent of all U.S. cane sugar, and maintains 35,000 acres in cultivation, down from a peak of 37,070 acres in 1998.

By comparison, Gay & Robinson grew sugar cane on about 7,000 acres. The other most recent plantation shutdowns were Amfac's Kekaha and Lhu'e operations in 2000 involving roughly 20,000 acres on Kaua'i, and Amfac's 6,200-acre Pioneer Mill on Maui in 1999.

The size of HC&S gives it operational efficiencies. The land HC&S farms also is contiguous and mostly company owned, allowing better use of irrigation, processing and other systems compared with most old rivals.

Another advantage HC&S has is that its crop is concentrated on the sunnier, leeward side of the island. Historically, plantations in windward areas produced less cane and were the first to exit the business. Like HC&S, Gay & Robinson had a leeward plantation.

Corporate organization has also given HC&S some extra security. Since 1898, HC&S has been a unit of A&B, a company diversified in the ocean transportation and real estate sectors that at times have allowed the company to offset farming losses with profits from other divisions.

A&B's agribusiness division, which includes a profitable Kaua'i Coffee Co., is on pace for a second straight year of losses $27 million this year through September after an $11.3 million loss last year. But A&B overall has maintained a net profit on the strength of other divisions.

The lack of support from a large parent company hurt family-owned operations such as Gay & Robinson or other big but not-as-well diversified companies such as Amfac and C. Brewer & Co. that shut down their sugar plantations.

But there could be a down side to being part of A&B for the sugar plantation. Since A&B is a publicly owned company, there is pressure from stockholders who tend not to tolerate losses.

"It has to have acceptable financial performance," Benjamin said.

In the 10 years before last year, A&B's agribusiness division accumulated $88.3 million in operating profit. The previous operating loss for the division happened in 1995, when it lost $27.8 million. A year later, A&B shut down McBryde Sugar Co., its struggling sugar plantation on Kaua'i that had been in business since 1899.

DROUGHT PROBLEM

HC&S losses this year stem largely from an unprecedented drought that inhibited sugar production by cane plants over the past two years; a regulatory ruling that reduced its revenue from selling electricity to Maui Electric Co.; and the stock market weakness that created a deficit in the plantation's pension fund.

HC&S has about 755 employees. Employment peaked at 3,390 workers in 1949, and had shrunk to 1,300 by 1985 before the most recent changes further reduced the work force nearly by half.

Reducing labor costs was especially crucial for sugar plantations because advances in the amount of sugar produced per acre of cane plateaued about a decade ago at about 14 tons per acre.

HC&S is investigating ways to convert sugarcane or other crops to electricity or ethanol, which could be the future of the plantation.

"We recognize the commodity sugar business may not well be viable in 10 years," Benjamin said. "But the new model we're looking for remains elusive."

Whether HC&S is able to keep producing sugar or find a viable biofuel crop could hinge on its access to water.

Maui taro farmers have been fighting for more than 20 years to obtain a greater share of water diverted from streams by a 74-mile network of HC&S irrigation ditches connected to the vast East Maui watershed.

The farmers say HC&S fields that blanket Maui's central plain use so much stream water that there isn't enough left to feed taro fields, and that the diversions violate the state Constitution protecting their cultural practices as Native Hawaiians.

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