Sample Business Plan

2.The Hawai`i Market

The Hawaiian demand for organics may not easily correspond with national market trends due to our unique location. Certainly there have been similar public health and environmental scares. In 1993, the chemical pesticide heptachlor, recognized by the EPA as carcinogenic, was banned because residues were found in a number of agriculture products including cow’s milk and cucumbers. Heptachlor had been used to eradicate ants from pineapple and to kill termites in homes.^xix Despite this type of impetus, Hawai`i has been slow to embrace organic foods. The National Agriculture Statistics Service (NASS) reported in 2003 that of Hawai`i’s $553 million total farm revenue, only an estimated $4.8 million was organic (less than 1% of total Hawai`i farm revenue). Comparatively U.S. organic produce represents over 2% of total farm revenue.<sup>xx</sup>
There are seven small natural foods stores on the island of O`ahu and like the continental U.S., organic fruits and vegetables can now be found in Hawai`i’s regular retail grocery stores. Of nine regular grocery outlets surveyed for this business plan, six stocked organic fruits and vegetables.<sup>xxi</sup> Of the three that did not stock organic produce one had been in recent contact with MA`O to purchase product. Of the six stores that did stock organic fresh produce, a non-scientific visual survey of inventory showed that less than 10% was locally sourced. In two stores none of the organic produce was from Hawai`i.
Hawai`i imports over 80% of all fruits and vegetables, and 90% of fresh organic produce.^xxii Organic foods already sell at a premium, where the additional cost of shipping to Hawai`i increases the retail price of organic foods out of the range of most local residents. Recently, however, big-box retailers such as Costco have started importing large volumes of organic salad greens from California, selling them at a third of the price of the same locally produced product.<sup>xxiii</sup> For the most part, the local trend in organic foods is closely aligned with the emergence of Hawai`i Regional Cuisine, a merging of Eastern and Western cooking influences that mirrors Hawai`i’s cultural diversity.<sup>xxiv</sup> Chefs have connected with smaller farms to source the freshest ingredients and have asked for organic fruits, vegetables and meats. This market had been predominantly a tourist audience (high-end, college-educated travelers staying at resorts), but over the past decade many restaurants have been established in local communities. This trend has stimulated the local market, and is best illustrated by the recent establishment of three Hawai`i Farm Bureau Federation (HFBF) farmer’s markets on O`ahu. In Honolulu, the Kapiolani Community College (KCC) Farmers Market, opened in late 2003, attracts over 2,500 visitors each Saturday. The market’s development has been critical for local farmers because it is the first time a market has required all products be grown in the Hawaiian Islands. At other farmer’s markets on O`ahu, such as the City and County of Honolulu operated People’s Open Markets, vendors may sell imported fruits and vegetables.
According to the Hawai`i Organic Farmer’s Association (HOFA), the local trade association for organic growers, there are now approximately 132 certified organic farms in the State of Hawai`i^xxv with only nine located on O`ahu where 870,000 consumers reside.<sup>xxvi</sup> It is difficult to extrapolate exactly how large the organic fruits and vegetables market is on O`ahu, partly because State agencies do not as yet collect organic-specific data.
A measure of industry size can be understood by looking at growth trends related to a leading retail outlet on O`ahu called Kokua Natural Foods Cooperative. Formed over 25-years ago, Kokua has a membership of 2,400 and occupies a small grocery outlet approximately 2,000 square feet, close to the campus of the University of Hawai`i. The membership, staff and Board have collectively decided that an expansion is imperative at this time because currently no national health food chains, such as Whole Foods or Trader Joe’s, have entered the Hawai`i market, and there are industry rumors that Whole Foods is researching local store locations. Kokua hired industry consultants to survey the market potential and reported that Kane`ohe, located on the Windward Side of O’ahu, would be an ideal location for expansion. Kane`ohe has a population of 35,000 people, and the industry consultants deduced that the total natural foods market for Kane`ohe is valued at over $4 million, with 18-20% of sales predicted to be organic fruits and vegetables. Since Kane`ohe represents 4% of O`ahu’s population, the overall organic fruit and vegetable market size could be as large as $20 million.
Local industry leaders believe that organic agriculture is poised to expand. In a Hawai`i Business Magazine special report on agriculture, various experts, including Mr. Alan Takemoto, Executive Director of the Hawai`i Farm Bureau Federation, identified organic agriculture as having “great potential in Hawai`i.”<sup>xxvii</sup> In support letters, Ms. Joan Namkoong of the Hawai`i Farm Bureau Federation and Mr. David Cole of Maui Land and Pine clearly state that the market is wide-open. Mr. Cole states that there is “great economic potential” especially given the “growing consciousness of consumers.”

3.Local Competition

There are a number of small organic farms that operate on O`ahu. These farms generally sell products wholesale to local health food stores because this ensures a steady price and quantity demand, contrary to farmer’s market booths that pose increased risk and require investment in an increased labor force. There have been two well-known local certified organic growers:

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  Ko Farms sells fresh herbs, salads, and greens to all of Hawai`i’s natural foods stores, and to a number of supermarkets. They recently sold their Waimanalo farm, and the owner Daniel Ko now works for the State Department of Agriculture. Daniel’s wife still grows specialty herbs and sells to all the natural foods stores. The quality of their product is very high, but production capacity low; and
  
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  Lone Palm Organic Farms on the Big Island of Hawai`i. Lone Palm is one of only a few neighbor island organic growers that regularly ship to O`ahu. They specialize in high quality sprouts and lettuces and work with three other growers to make salad mixes sold to natural foods stores, restaurants and supermarkets. Their product is very high quality and strongly supported by local consumers in health food outlets, and their production capacity is high.
  

Two other certified growers occasionally attend KCC Farmer’s Markets they are: (1) Ono Organic Farms, a 30-acre Maui-based grower of exotic fruits, papaya and banana; and (2) Lotus Farms, a 1-acre O`ahu based chicken farm. A scan of HOFA’s certified growers list shows that the majority of local growers tend towards mono-cropping products such as macadamia nuts, papaya, pineapple or coffee. Maui Land and Pine (MLP) is the largest grower in the State and specializes in organic pineapples. They will certainly expand in the future, but as the support letter indicates they are exited about collaborating to expand the overall organic market in Hawai`i.

There are regularly thirty-five booths at the KCC Farmer’s Market, of which 15-20 are farmer-operated fruit and vegetable sales booths.^xxviii There are a number of conventional farmer’s that grow the same vegetable varieties as MA`O, one of the most successful is Dean Okimoto. Mr. Okimoto owns Nalo Farms, a 5-acre farm recognized as one of the most successful farms in Hawai`i today. Mr. Okimoto has been able to penetrate the high-end restaurant market and his signature “Nalo Greens”, a delicate combination of mixed baby lettuces, is featured at over 100 of Hawai`i’s best restaurants. It is often difficult for consumers to distinguish between organic and conventional products, however, at MA`O’s sales booth our young Hawaiian sales representatives are large in number and energetic, and their exuberance draws customers to our products. Signage at our booth features liberal reference to “organic” which quickly informs customers of our status as organically-certified.