Maui Sugar: End of an Era – Part 1

In January, 2016, Alexander & Baldwin Inc. announced that it is transitioning out of farming sugar and will instead pursue a diversified agricultural model for its 36,000-acre Hawaiian Commercial & Sugar Company plantation on Maui.

As we head into the final quarter of 2016, Maui Now created a special Maui Sugar: End of an Era section that honors the industry, its workers and the plantation roots that have become a part of the last 145 years of Maui’s history.

Sugar operations will be phased out by the end of the year, and the transition to a new model will occur over a multi-year period.

Beginning in March, laid offs began as functions were completed. The end of the sugar harvest is projected to be completed late in the year.

Under the new, diversified model, the plantation will be divided up into smaller farms with varied agricultural uses, potentially including energy crops, food crops, support for the local cattle industry and the development of an agriculture park.

In the initial announcement, A&B executive chairman Stanley M. Kuriyama noted that A&B’s roots began with the planting of sugar cane on 570 acres in Makawao, Maui, 145 years ago.

A&B is evaluating several categories of potential replacement agricultural activities. These include energy crops, agroforestry, grass-finished livestock operations, diversified food crops and orchard crops, among others.

HC&S has several test projects underway to further assess these opportunities, and A&B is in the process of expanding the scope and scale of the trials.

Initial projects include:

• Energy crops: Building upon its extensive experience with crop-to-energy production, HC&S has initiated crop trials to evaluate potential sources of feedstock for anaerobic conversion to biogas. This on-farm testing currently is being expanded from plot to field-scale and HC&S has entered into a confidential memorandum of understanding with local and national partners to explore market opportunities for biogas. HC&S also is assessing the potential of cultivating purpose-grown oilseed crops for biodiesel production and has entered into preliminary, but confidential, discussions with other bioenergy industry players to explore additional crop-to-energy opportunities.

• Support for the local cattle industry: A&B is exploring the costs and benefits of irrigated pasture to support the production of grass-finished beef for the local market. HC&S has converted a test site of former sugar land to cultivated pasture and is working with Maui Cattle Company to conduct a grass-finishing pasture trial in 2016. High-quality grazing lands could enable Maui’s cattle ranchers to expand their herds and keep more cattle in Hawaii for finishing on grass.

• Food crops/agriculture park: A&B plans to establish an agriculture park on former sugar lands in order to provide opportunities for farmers to access these agricultural lands and support the cultivation of food crops on Maui. HC&S employees will be given preference to lease lots from the company to start their own farming operations.

HC&S is the state’s largest farm, with 36,000 acres under cultivation. It also generates enough electricity, primarily from renewable sources, to be 100% energy self-sufficient.

A&B is a Hawai‘i-based public company with interests in real estate development, commercial real estate, agriculture, materials and infrastructure construction. With ownership of over 88,000 acres in Hawai‘i, A&B is the state’s fourth largest private landowner, and one of the state’s most active real estate investors. A&B manages a portfolio comprising five million square feet of leasable space in Hawai‘i and on the US Mainland and is the second largest owner of retail assets in the state. A&B also is Hawai‘i’s largest materials company and paving contractor.

A&B Third Quarter Report:
Better Than Anticipated Due to Favorable Harvest

In a Third Quarter 2016 report released today, A&B is reporting an operating profit of $1.9 million for agribusiness, excluding sugar cessation costs.  This has been better than anticipated year-to-date thanks to a favorable harvest.  As a result, A&B now anticipates that the full-year 2016 pre-tax loss for Agribusiness operations will be closer to the favorable end of the $5-$15 million loss guidance previously provided, according to Chris Benjamin, A&B president and chief executive officer.

Total Agribusiness operating losses for the third quarter of 2016 were $15.7 million and included $17.6 million of sugar cessation-related expenses. Agribusiness operating profit excluding sugar cessation expenses was $1.9 million in the third quarter of 2016, compared to a loss of $9.0 million in the third quarter of 2015. The improvement primarily was due to lower sugar production costs, partially offset by lower power margin. As a result of favorable experience so far this year, full-year pre-tax operating losses and cessation costs are expected to be at the favorable end of their previously provided ranges—$(5)-$(15) million and $(75)-$(90) million, respectively.

Year-to-date, the company reported a net loss for the first nine months of 2016 of $10.1 million, or $0.19 per diluted share, which included a $30.4 million after-tax loss from the Agribusiness segment, or $0.62 per diluted share, principally related to the cessation of sugar operations at HC&S.