A kamaaina company that once operated the biggest sugar plantation in Hawaii has surrendered its interest in a historic water system on Maui after a decade of litigation over state allocations of the public trust resource.

Alexander & Baldwin Inc. has conveyed its half interest in East Maui Irrigation Co. to the diversified farming business Mahi Pono, which in 2018 bought the other half along with 41,000 acres of former A&B sugar plantation lands in Central Maui for $262 million.

As part of the new deal, A&B will not receive $2.7 million as previously agreed for selling the rest of EMI. A&B also will pay Mahi Pono $55.3 million over four years to get out of obligations tied to A&B or EMI not being able to secure long-term state water use that allow Mahi Pono to fully implement its farming plan.

A&B, under those obligations, might have had to pay Mahi Pono about $70 million if a long-term state water lease was not obtained by February 2027.

Meeting that deadline appeared doubtful given long-running litigation and more recent interest expressed by Maui County to obtain such a lease or license from the state for the same water originating in mountain streams and diverted largely for Mahi Pono use via a more than century-old system of ditches, reservoirs and other features.

A&B declined to comment on the EMI transaction other than to say it is a continuation of the company’s strategy to focus on its core business as a real estate investment trust operating retail centers and other commercial property in Hawaii.

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Mahi Pono, a venture formed by California-based Pomona Farming LLC backed by a Canadian pension fund, said in a statement that the transaction will not result in any changes to the operations of EMI, which it has led since 2019 as managing partner.

“We look forward to advancing the production of fresh and locally grown food, the creation of meaningful jobs for Maui families, and contributing to a sustainable future for Hawaii,” the company said.

Farm growth

Maui Pono over the last seven years has gradually expanded farming on what had been fertile but largely fallow fields once filled with sugarcane until 2016, when A&B shut down its then-subsidiary Hawaiian Commercial & Sugar Co., the last major sugar operation in the state after nearly 150 years in existence.

Close to half of Mahi Pono’s 41,000 acres are in production, including over 9,000 acres of pasture supporting the grass-fed beef operations of affiliate Maui Cattle Co., and over 13,000 acres planted with more than 2 million banana, coffee, avocado, macadamia, coconut, ulu, lemon, lime, orange and tangerine trees.

The company also grows onions, watermelon and lilikoi, and in the past has produced potatoes. Produce is sold across the state often under the company’s Maui Harvest brand.

Citrus fruits are Mahi Pono’s largest crop harvested in most months, though in some months seasonal row crops such as watermelons and onions can be bigger.

For instance, in June the company sold 800,000 pounds of watermelons statewide.

In total, the farm last year sold about 9 million pounds of food, including beef, and expects the total to grow by about 50% this year.

Mahi Pono projects that it can reach full productive use of all its farmland, including rotational pastures for cattle, within the next three to five years, provided it can obtain enough water.

EMI has let the state Board of Land and Natural Resources know that it anticipates having a need for up to 82 million gallons of water a day to support diversified agriculture. Mahi Pono said this amount is roughly half the amount historically diverted for sugarcane and leaves enough water to comply with interim state stream-flow standards.

But contention over the diversion of stream water for agriculture use in Hawaii is strong.

The issue hasn’t been limited to EMI or Maui. Litigation over diversions around the state dates back over 30 years, and in some cases stream flows have been restored after plantations folded.

In EMI’s case, diverting billions of gallons of water from East Maui streams has been contested by environmentalists and Native Hawaiians since before Mahi Pono agreed to buy the farmland and water system from A&B.

Litigation flow

A&B, which dates to 1870, was one of Hawaii’s original Big Five companies that dominated commerce when sugar was the biggest crop in the islands and an export largely supporting the economy.

Yet the use of stream water to largely feed the HC&S plantation had long rankled Hawaiians and environmentalists because East Maui streams at lower elevations, including some serving taro farmers and supporting native aquatic species, would run dry due to upstream diversions for HC&S.

EMI’s gravity-fed system runs 70 miles over public and private land, including 16,000 acres of watershed property owned by the company.

In recent years, EMI was allowed to take as much as 45 million gallons a day from the northeastern slopes of Haleakala for agricultural and domestic purposes that include Mahi Pono’s farm in Central Maui, a county agricultural park in Kula, and the county Department of Water Supply to serve over 35,000 residents in Upcountry Maui.

The first lawsuit over EMI water use was filed in April 2015, three months after A&B announced plans to wind down HC&S and cease sugarcane farming in 2016.

Three plaintiffs — Healoha Carmichael, Lezley Jacintho and Na Moku Aupuni O Ko‘olau Hui — alleged in state court that BLNR had not been properly issuing EMI annual water allocations.

At one time, A&B had held long-term water licenses for EMI water use, though the last one expired in 1986. A&B applied in 2001 for a long-term water lease but did not receive it in part due to opposition.

The 2015 lawsuit in part contended that an environmental study was required for water allocations granted under revocable annual permits. The case ultimately wasn’t decided until 2022 by the Hawaii Supreme Court after a series of BLNR rulings, appeals and temporary intervention by the Legislature.

Separately, the Sierra Club of Hawaii has been engaged in several lawsuits contesting BLNR decisions over EMI’s annual water permits, the first of which was filed in 2019.

EMI rendered some of the litigation moot by producing an environmental impact statement in 2021 for its annual water permits and a desired long-term license. Still, the Sierra Club has been trying to contest annual permits, including the most recent one granted by BLNR, and litigation remains pending in state court.

Competing interests

Much of the contention since HC&S shut down and Mahi Pono began planting crops is over how much water is necessary to support farming.

In 2020, Sierra Club attorney David Kimo Frankel urged BLNR to set a maximum allocation closer to what was actually used by Mahi Pono at the time, which he said was about 25 million gallons per day on average.

“To take from East Maui streams and have it wasted is criminal,” Frankel said at the time. “You’re doing incredible damage to the streams, to the value of the streams, whether it’s biological or recreational.”

The Sierra Club also has argued that a lot of water is wasted due to leaks in the system, including seepage from unlined reservoirs, and that preventing leakage would leave more water for streams.

Another argument by the environmental group is that EMI has several water wells that should be used more to reduce diverted stream water.

Others, including the Hawaii Farm Bureau, have expressed concerns that curtailing water allocations for EMI could hamper Mahi Pono’s viability and growth.

“My biggest fear is seeing our lands turn into development if (agriculture) fails,” then-BLNR member Doreen Canto said during a board meeting in 2021.

More recently, Maui County has entered the fray with an interest to be part of the long-term license, or acquire such a license outright from BLNR.

The county in 2023 established a board-led East Maui Water Authority after county voters approved a charter amendment in 2022.

In September, county officials suggested that BLNR could forgo an anticipated future public auction of a 30-year water license and instead give the county such a license through direct negotiation.

“My hope is to end the long-standing conflict surrounding this water resource, and to bring the parties together to explore fair and equitable ways to balance everyone’s water needs,” Maui Mayor Richard Bissen said in a letter. “The best way to accomplish this end is to come up with a working compromise rather than an expensive, lengthy contested case proceeding.”

DLNR’s expectation has been that a long-term license would be auctioned after holding a quasi-judicial contested-case hearing where stakeholders represented by attorneys can present testimony, introduce evidence and cross-examine expert witnesses to better inform the board’s decision.

It’s uncertain when such a contested-case hearing may be held.

So, EMI continues to draw water under yearly revocable permits, the latest of which was approved in December for this year, and arguments continue over what is appropriate use.

Current permit

Grant Nakama, Mahi Pono senior vice president for operations, told BLNR in December that 40% of the company’s agricultural fields were planted. He also said the company had diverted 34 million gallons of water per day on average during the first 11 months of 2024.

Nakama also told the board that new limits proposed by state Department of Land and Natural Resources staff designed to set a monthly average cap for water diversions for 2025 were too low for Mahi Pono crop needs.

Frankel urged the board to require EMI to stop wasting what he said he can prove is millions of gallons of water leaking daily so that more water can continue downstream for use by taro farmers and native species.

“There are kalo (taro) farmers, or people who would like to be growing kalo, who have no water,” Frankel said, showing an enlarged photo of a portion of Hoolawa Stream that he said is dry 70% of the time due to EMI diversions.

“They (Mahi Pono) want to expand their operation while people are suffering,” Frankel said. “That is wrong.”

The board at that December meeting granted a new one-year permit that allows EMI to divert 3,263 gallons per day, on average by month, for each planted acre on Mahi Pono’s farm. The company pays the state about $280,000 a year for the water plus cash or services for water management valued at about $140,000.

Mahi Pono said its annual operating budget for EMI regularly exceeds $2.5 million.

Frankel said Wednesday that the Sierra Club, which still has pending litigation over BLNR decisions on EMI approvals, intends to contest anticipated provisions of a long-term license that DLNR has said mirror the short-term permit.

“There need to be more efforts to put more water in more streams,” he said.

Mahi Pono, in its statement said, “Adequate water is essential for farming and local food security. We continue to work with the State and other stakeholders to advocate for sustainable and water-efficient agriculture in Central Maui.”