Hawai'i's biggest milk producer, Pacific Dairy, will soon become the latest casualty of a livestock industry in steep decline.

High land, labor, feed and transportation costs coupled with environmental issues and urban encroachment are making it increasingly difficult for farms to survive.

Two Big Island dairies and one O'ahu dairy have closed in the past two years, leaving the state with just five commercial milk producers. Last week, the largest of those — Pacific Dairy — announced plans to shut down on June 30, 2007.

"One year from now we'll be done," said Robie Ann Dorwelo, administrative manager for the 11-year-old Wai'anae dairy. "It's the costs."

Since 1999, 26 commercial livestock operations in Hawai'i have shut down — a 41 percent drop, according to a survey by the University of Hawai'i College of Tropical Agriculture and Human Resources. During that period, the state's poultry sector has been nearly wiped out while the number of milk, egg and pork producers have fallen sharply.

Although Hawai'i's farm sector remains relatively small compared to the $11 billion tourism industry, agriculture plays an important role in diversifying the state economy, preserving greenbelt lands and reducing the Islands' dependence on imported food. After a decade of mostly declining sales during the 1990s, agriculture overall is on steady footing, thanks to the growth of specialized crops such as noni, papaya, macadamia nuts and microalgae.

The decline in local livestock production makes Hawai'i more dependent on the Mainland and other sources to meet basic needs, said Harold Keyser, Maui County manager for UH's ag college. As it stands, Hawai'i has a one-month reserve of gasoline and fuel reserves to generate two months of electricity.

However, "Ninety percent of our food comes into our state and we have about seven to 10, days of food on retail shelves at any one time," Keyser said. "If there were a shipping problem, clearly the major factor would be the availability of food and water.

"Once you focus on that, you start to get a little worried."

David Davenport, owner of the 40,000-bird Hawaiian Fresh Egg Farm in Waimea on the Big Island, attributed the industry's decline to soaring shipping costs and increasing competition from Mainland producers. In recent years, the cost of importing packaging is up 4 cents per dozen eggs, which translates into an annual $7,000 increase. Meanwhile increases in the cost of importing feed make it impossible to compete on price with Mainland eggs, Davenport said.

"I don't know what the future is," he said. "I'm not optimistic about it. It's getting harder and harder to keep the animal-type businesses going."

'WE'VE GOT NO SUPPORT'

Part of the problem is the lack of consumer demand for locally produced products. William Robeson, a Waimanalo resident, said he tries to buy local produce when possible, even if it costs a little more. Locally-produced farm products often carry the "Island Fresh" logo.

"I always have, ever since I arrived here in 1976," he said while shopping at Shima's Market in Waimanalo. "Really, the price is not bad, and it's good quality and comes straight from the farm."

On Thursday, Shima's was selling Island-produced boneless pork for $3.59 a pound, which was a dime more than Mainland pork loin. Both were well above a special price of $2.19 a pound for Mainland pork chops.

Shima's carries locally produced pork but no local beef or eggs. Local eggs are "very expensive," said Ron Shima, owner of Shima's. "There's some customers that will buy local products across the board, but most of the customers buy on price. Consumers are really not aware of what's local or Mainland."

Ed Boteilho Jr., president of Clover Leaf Dairy in North Kohala, said state officials aren't doing enough to help farmers. Boteilho cited generous tax subsidies granted to the state's high- technology and hotel sectors, but not to farmers. In addition to tax breaks, the state needs to spur the development of local sources of animal feed and urge Hawai'i consumers to support local farmers by buying their products.

"We've got no support," Boteilho said. "Everybody is out on their own. The state is just letting things happen.

"There's no direction, no focus."

LAND LOST TO HOMES

Other problems facing farmers include urban encroachment and a lack of long-term leases on private-sector agricultural lands, said Chin Lee, a dairy extension specialist at UH. The amount of land farmed in Hawai'i fell 10 percent from 1997 to 2002 as sugar-cane acres went fallow or were converted to housing, according to the 2002 U.S. Census of Agriculture.

That figure is likely to fall even further as more agricultural land gets converted to housing. For example, the Schuler Division of D.R. Horton Inc. recently purchased 1,600 acres of former sugar-cane land near Kapolei from the Campbell Estate for $71 million to build 10,000 to 15,000 homes plus schools, parks and commercial development. Much of the land is now used by diversified-crop farmers such as Aloun Farms, Larry Jefts Farms and others.

Any livestock operation that shuts down is likely gone for good, Lee said.

"When a particular operator goes out of business you don't have another one starting," he said. "Once we lose them, we'll never have it. There is no replacement."

State Rep. Michael Magaoay, D-46th (Kahuku, North Shore, Schofield), agreed the state should do more to help farmers, such as blocking the conversion of agricultural lands into housing. He added that it is difficult to build support to create new tax credits for farmers.

"Most (lawmakers) were not raised in a rural area," said Magaoay, a member of the House Agriculture Committee. "Many of my colleagues don't see the benefit of encumbering the land."

In addition, the state Department of Agriculture and UH can do more to leverage existing programs and research to help livestock farmers, he said.

"I hate to say it, but the future is not looking good for livestock right now," Magaoay said.

EFFORTS UNDER WAY

Sandra Kunimoto, Department of Agriculture chairwoman, said better marketing, new incentives and other efforts already under way could help farmers. For example, the department is developing incentives to entice large landowners to dedicate lands for long-term agricultural use. Those incentives likely will need legislative approval.

Kunimoto also cited the 2005 Legacy Lands Act, which earmarks 10 percent of funds collected through the state's conveyance tax for land conservation. The tax levy is expected to generate about $9 million a year for buying land or securing easements on conservation and agricultural lands.

The state this year also launched a new "Hawai'i Seal of Quality" label that it hopes will increase awareness for Hawai'i farm products.

"We are addressing these issues over time," Kunimoto said. "There's no question that there are challenges there, but we see them as very, very important, and we hope that the public will support them."

It's not all bad news for livestock. Hawai'i's cattle operations have experienced stable or growing sales in recent years, in part because cattle operators tend to own their own land and graze cattle in open fields. From 2000 to 2005, farm-level cattle sales rose 19 percent to $22.8 million, according to the Hawaii Agriculture Statistics Service. However, most of the state's cattle are not consumed locally. Hawai'i cattle typically are shipped to the Mainland as calves and raised and slaughtered there to avoid the cost of shipping feed to Hawai'i.

Reach Sean Hao at shao@honoluluadvertiser.com.