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Case Study: How Richard Ha's Workers Saved His Company

Has this farmer gone bananas?
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Richard Ha tends not to take himself too seriously. The founder of Hamakua Springs Country Farms, a 600-acre banana and vegetable farm on Hawaii's Big Island, once showed up wearing shorts to receive an award from the state's governor. He calls his eco-farming blog Ha Ha Ha! But earlier this year, Ha was not smiling. He had decided to shut down his banana-growing operation, a move that would leave 400 acres fallow. His costs -- for fertilizer, energy, and health care coverage for his workers -- had been soaring. And because banana prices were flat, there seemed to be no end in sight.

On the first Friday in April, Ha delivered the bad news to his nine full-time banana pickers. But when Monday morning rolled around, Ha was surprised to find that seven of the workers had shown up to plead their case for keeping the farm going. His farm crew members, many of whom had not graduated from high school, had a fairly sophisticated plan: planting a less labor-intensive variety of banana that would require less land and could be grown closer to the packing facilities. That would do away with the need to hire additional workers at harvest time. It was tempting. The last thing Ha wanted to do was close down his farm and fire his trusted full-time workers. But all of his business instincts were telling him that doing otherwise was inviting disaster.

One thing was certain: Shutting down would be personally painful for Ha. He began raising bananas on 25 acres of his father's chicken farm in 1973, after returning home from a tour in Vietnam and then graduating from college with an accounting degree. His start-up capital consisted of $300 from his credit card. He traded chicken manure to other banana farmers for banana plants and collected used banana boxes to save money on cardboard.

Unlike pineapples and sugar cane, bananas have always been a mostly local crop in Hawaii, given that the mainland gets plenty of the fruit from Central America. So Ha primarily sold to the island market. He eventually became one of the state's more successful farmers, responsible for as much as a third of Hawaii's bananas. He was among the first in the state to develop the market for apple bananas, a small, extrasweet variety that carries a premium price. Hamakua Springs is also one of only a few banana farms to receive an "Eco-OK" certification from the Rainforest Alliance, an influential environmental group. By 2001, Ha's operations had revenue of more than $1 million as he branched out into other crops -- including tomatoes, lettuce, and Japanese cucumbers -- that he grew hydroponically.

A lot of the joy and money, though, had since gone out of growing bananas. For one thing, in recent years, Hawaiian bananas have repeatedly been hit by a virus; Ha's crop was damaged more than once. Cheap imports from Central America increasingly flooded Hawaiian markets, forcing a number of banana farms in the state to close, including Ha's largest competitor. The prices of fertilizer and energy, always higher on Hawaii than on the mainland, were climbing every day, taking a bigger and bigger bite out of profits. Because of the constant refrigeration needed to control the ripening of green bananas, Ha's utility bills recently hit $15,000 per month.

But Ha's biggest concern was finding enough workers to tend the banana fields. "Our yields were suffering, because we were struggling to keep a stable work force," says Ha, who figured it was only a matter of time before the farm started losing money. For months, he had wrestled with the idea of closing down the banana farm. A careful businessman, Ha constantly calculates his operational costs and profitability. And his weekly spreadsheets were showing a gradual but steady drop in profits. Finally, in early April, he discussed closing down with his manager, Kimo Pa, who is also Ha's son-in-law. Ha's daughter Tracy Pa and his wife, June, also weighed in. Everyone agreed time was running out. "We were doing OK," says Ha. "But I thought it would be better to shut it down rather than lose money and be forced to shut down later."

Then Ha's full-time pickers showed up to make their case. "I figured they would go for unemployment or go hunting for other jobs," Ha says. "It was a big shock." Indeed picking bananas isn't exactly coveted work. It's about as tough as manual labor gets. A banana picker carefully notches away at a banana bunch with a razor-sharp machete. He then positions himself below the bunch so that, with the final notch, it falls on his shoulders. He then carries his bundle over to a nearby trailer. In a typical day, a worker might handle 100 bunches, or more than 10,000 pounds, of bananas.

You would think there would be easier ways to make about $12 an hour. But the job at Ha's farm also came with full health benefits and lots of free fruits and vegetables. "It's hard work, but it's good work," says Eric Garcia, who's been picking bananas for Ha for five years and was among those lobbying to save the jobs. "You get to work out in the fresh air, mostly by yourself. I said let's do whatever it takes to keep it going."

It wasn't as if there were too many other jobs. Though unemployment on the Big Island is less than 5 percent, full-time blue-collar jobs with benefits and decent pay are rare. The only other work at similar pay is in hotels and restaurants. But most of those jobs were located on the other side of the island. For Ha's pickers, that would mean a three-hour round-trip commute by car and hundreds of dollars per month in gasoline.

When the workers showed up that Monday morning, they huddled with Pa for several hours. Together they penciled out a plan that would eliminate the 100 acres of apple bananas, which yield less per acre than regular bananas and are more difficult to pick. A second step would be to move the remaining banana plantings much closer to the packinghouse and chiller room to reduce the workload and speed up turnaround. The workers argued that they could run the operation with a much smaller work force and get nearly 10 percent more output per acre. The higher productivity would be sufficient to return the banana operation to healthy profitability.

When presented with the plan, Ha listened closely. Under normal circumstances, he wouldn't think such a plan would cut it. But he had been watching the huge run-up in oil prices, and he realized it was starting to work to his farm's advantage. When he first began thinking about closing down the banana operations, oil was just above $100 per barrel. Now, it had soared to around $110. Ha knew he would soon be getting some energy savings from a hydroelectric generator he planned to install along a stream on his property. At the same time, the surge in oil prices was hurting importers far more than it was hurting him. Importers were paying shipping companies a 30 percent or higher fuel surcharge on containers coming to the islands. The weakness in the dollar had further pushed up prices for Central American bananas.

Taking in these factors, Ha and his son-in-law saw a sustained period of higher prices for imported bananas. That would give them the cushion they needed, and it made the workers' proposal seem tenable. "For the first time in recent memory, banana prices did not fall steeply during the summer," says Pa. "That made us think something had changed."

The Decision A day later, Ha reversed his decision and announced that Hamakua Springs would continue shipping its bananas to supermarket shelves on the Big Island, Maui, and Oahu. Ha knew if his banana gamble didn't work, he might tip his farm into the red and put a strain on other parts of his business and his family. In the end, though, he decided to follow his heart -- sticking with the banana crop and keeping his staff intact. "Nobody told us it would be the end of cheap bananas," says Ha. "We had to decide that for ourselves. Had the world really changed that much? I knew it would be a big risk." Still, if it hadn't been for the workers' insistence, he doubts he would still be growing bananas today. "They really wanted to make it happen," Ha says. "They said they would work hard. I felt I had to meet their commitment."

The team members immediately put their shoulders into transforming the operations, pulling out apple banana trees and preparing the 100 acres to be leased to other farmers. Since the decision, oil prices have climbed to nearly $140 per barrel -- and plenty of experts think they are headed much higher, which would be good news for Hawaii's homegrown bananas. Ha is now pricing his crop slightly below the imports and still expects to hit his profit targets. "As long as we do a good job, we'll hold our own," he says. "We would really like to supply our island, and everything seems to be pointing toward this being a good strategy."

The Experts Weigh In

Go for the local edge

We are seeing record jumps in the cost of fertilizer, tractor fuel, electricity, and even farm tractor tires, all associated with oil prices. Ha's decision to shift crops and alter banana production was a difficult one that is uniquely based on the loyalty of his employees and the geographic isolation of Hawaii. It will definitely build worker morale. And there is some inherent competitive edge in being a local producer. But because of high production costs, there is still very little room for mistakes.

Alec Sou
General Manager Aloun Farms
Kapolei, Hawaii

Try for green marketing

Ha has made a very brave decision that, I think, will prove to be right. He should also invest in developing Fairtrade accreditation. This would give an additional point of difference when competing with Central American imports. It would also leave the door open to forging new business with ethically and environmentally conscious retail buyers in places such as California and Washington. Fairtrade bananas brought in by boat from Hawaii might have a greener sound to them than conventionally grown fruit trucked through Mexico.

Mike Knowles
Editor
Eurofruit Magazine
London

Keep Workers Looped In

The initiative and creativity demonstrated by Ha's workers bodes well for the operation. The decision to keep the banana operation also satisfied his desire to keep workers employed and provide food for Hawaii. But he might want to figure out financial benchmarks for his banana operations and share them with the workers. That would encourage them to continue thinking like owners. Finally, Ha should have a contingency plan in place so that a decision to exit bananas can be made swiftly and minimize any negative impact.

Steven Chiang
Agribusiness director
University of Hawaii
Honolulu




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