Families, businesses only choice to pay

Hong Kong Cafe owner Eric Yeung says the price of a 50-pound bag of rice is up almost 60 percent to $30, but he refuses to charge for the staple at his restaurant.

After 12 years in business and two years without raising menu prices, Yeung is still holding out on passing rising costs to his customers.

Unfortunately, rice isn’t the only culprit. Energy and rent expenses aside, the wholesale price of just about every food item used at the modest Chinese restaurant is up — making for ever thinner margins.

Yeung’s concerns are shared by many. Across the island, nation and world, a number of factors have contributed to more expensive food: higher oil and energy prices, a changing global economy, a weak U.S. dollar, and more of the grain market being diverted to ethanol and biodiesel production.

In Mexico last year, tens of thousands marched through the capital city decrying a 400 percent increase in the price of tortillas. Also last year, Italian consumer groups staged a one-day pasta strike to protest the wheat product’s climbing cost, up 20 percent at the time. A month later, Argentine supermarkets launched a tomato boycott for similar reasons.

In the United States, the National Restaurant Association reports that wholesale food price inflation is at its highest in 27 years, up 7.6 percent in 2007 and another 8 percent this year to date.

Retail food prices at the supermarket increased 3.5 percent in the second quarter of 2008 since last quarter and 8.5 percent since last year, according to the American Farm Bureau.

The organization conducted an informal survey of 16 basic grocery items, including milk, flour, bread, apples, oat cereal, chicken, ground chuck, pork, mayonnaise, sirloin and potatoes. The average cost for the shopping trip was $46.67.

Corn oil and vegetable oil had the largest increases, followed by bacon. Only eggs and cheddar cheese went down in price.

“Cooking oils, flour, and bread prices continue to respond upward to historically tight world stocks of grains and oilseeds,” said Jim Sartwelle, a Farm Bureau economist. “Each quarter that passes just reinforces that we are producing and buying food in a global marketplace.”

National trends help explain price increases in Hawai‘i, but our geographic isolation means most food commodities are imported via air or sea — and are more expensive than on the Mainland.

The Farm Bureau reported that the average national price for a gallon of whole milk was $3.88 last quarter. On Kaua‘i, a gallon averaged $6.38 across four Lihu‘e supermarkets’ best prices yesterday. The out-of-pocket cost can reach upward of $10 if the sale brand is out of stock.

Working with

added costs

Citing rising oil prices, both Matson and Young Bros. increased their fuel surcharges most recently in June to 38 and 52 percent, respectively. Airlines have struggled as well, most notably Aloha, which sold its cargo business and dissolved its passenger service after filing for bankruptcy this spring.

On Kaua‘i, major food distributors such as Koa Trading Co. and Esaki’s Produce have implemented their own fuel surcharges to offset gas prices. Both companies, which deliver to all sides of the island, report $4,000 to $5,000 in additional fuel expenses per month these days.

Esaki’s general manager Earl Kashiwagi said the 1 percent charge, or a minimum $5, for deliveries has resulted in streamlined ordering from customers — a few times a week instead of daily.

“Everything is tied to oil,” Peter Yukimura, Koa Trading Co. president, said.

Corn and grain products seem to have been impacted the most, he said; however, considering their connection to most food and feed items, there’s been across-the-board price increases. Yukimura estimates a 5 percent rise over the last 12 months, with the past year showing the biggest jump.

As the economy constricts and prices rise, small business owners are feeling the pinch on a number of fronts — and sometimes there are casualties.

“Restaurant owners can’t really raise the prices that drastically on your customer base,” said Thames Goodwin, owner of Polynesia Cafe in Hanalei and the now-defunct Polynesia Nites in Kapa‘a.

Goodwin said dramatically rising food costs over the past 16 months played a supporting role in the failure of the Eastside eatery. The business depended on liquor sales to pad meager food margins.

When back taxes triggered the suspension of Polynesia’s liquor license, business went downhill. Polynesia Nites went up for sale late last month and is now seeking bankruptcy protection.

Goodwin said even the busy Hanalei location struggles to generate big enough profits to balance the time and energy his family invests in the small business.

“There are small margins to be made in food,” he said. “It’s so tough to make it work.”

Families try to

make it work

Families are having a difficult time, too.

Judy Lenthall, executive director of the Kauai Food Bank, says demand increased 20 percent from April to May, bringing the number of emergency food requests to almost 5,000.

“Because the cost of gas has skyrocketed and the cost of food has skyrocketed, people who were just making it aren’t anymore,” Lenthall said.

To shift some of the demand to the government, the Kaua‘i County Council has funded a Food Bank outreach program to help eligible families take advantage of available food stamp dollars.

“The light at the end of the tunnel is that maybe they’ll qualify for food stamps,” Lenthall said of the island’s needy.

Statewide the number of families and individuals receiving food stamps has increased since 2006. Last month enrollment for households was 49,599, up 12.6 percent since June 2006. Individual recipients were up 13 percent to 97,845.

Kaua‘i also saw a bump in the June numbers, albeit a smaller one — up 6.7 percent for households and 4.4 percent for individuals since June 2006.

Lillian Koller, director of the state Department of Human Services, which administers food stamps to Hawai‘i residents, says additional recipients can be a good thing.

“DHS strongly encourages everyone who is eligible for food stamps to sign up for this federally funded nutrition program,” Koller said. “Our successful outreach, therefore, means more people are in the program.”

Back in Wailua at Hong Kong Cafe, Yeung relies on flexibility and customer loyalty to keep the doors open. He repeats a message often championed by the Kaua‘i Chamber of Commerce: Don’t use tough finanical times as an excuse not to improve your business.

“Instead of downgrading the quality of food, you upgrade it,” he said. “If you give (customers) what they want, they will come.”

Perhaps his optimism deserves some credit, too.

“It’s tough; it’s very tough,” Yeung continued. “But, no, it’s not the end.”

• Blake Jones, business writer/assistant editor, can be reached at 245-3681 (ext. 251) or bjones@kauaipubco.com

Editor’s Note: This is the second of four articles examining how rising oil prices are affecting life on Kaua‘i, appearing in the Thursday edition throughout July. The third article will explore oil’s impact on utility costs, followed by a look at the tourism industry.

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