To many people, it might smell like a pile of rotting leaves, but not to Fung Yang.

“What you’re smelling is the smell of money to us,” says Yang, owner of Small Kine Farm in Waimanalo.

Yang grows organic mushrooms, and the earthy smell comes from piles of wood-chipped trees that Yang composts into what amounts to soil – the scientific word is substrate – for the portobellos he cultivates.

Hawaii imported about 2 million pounds of mushrooms in 2004, Yang says, the last year that figures are available. And that’s just a small part of the flow of food into a state where almost all of what’s eaten here is shipped in.

Yang is doing his small part to change that by producing thousands of pounds of mushrooms a week to sell in stores like Down To Earth, Kokua Market and Foodland.

As Small Kine Farm’s name indicates, it’s hardly a megafarm. But it’s big enough to support six employees, plus Yang, his wife, Yumi, and their 2-month-old daughter.

“We don’t make a lot of money,” he said. “But we offer a living wage.”

If Hawaii is going to grow more of the food it eats, including mushrooms, the state will need a lot more farms like Small Kine, or bigger versions of Small Kine, or both. But is it really possible for Hawaii, which now imports about 85% of its food, to grow more of what it eats?

Lisa Kleissner, a Hawaii philanthropist who has been overseeing an extensive study of the state’s food systems, thinks so. Kleissner is co-founder and board chair of Hawaii Investment Ready, a business incubator for entrepreneurial projects that address social and environmental challenges. She sees numerous tools to address challenges farmers face, including access to land and financing.

“These are solvable problems,” she says.

Jason Brand, a former investment banker who now runs a large lettuce farm on Oahu, agrees Hawaii can move the needle on how much of its food to grow here. It’s just a question of how much. Small Kine Farm has shown a farmer can make it growing mushrooms in Hawaii.

“The question,” Brand says, “is how do you scale the hell out of him?”

Competition For Resources

To understand the answer to that question, it’s useful to talk about the costs of running a small farm like Yang’s, as well as where a farm like Small Kine fits into Hawaii’s agricultural universe.

Often lost amid the talk of growing more food in Hawaii is that Hawaii’s biggest crops aren’t foods eaten here, but things grown mainly to export. According to the UDSA, the state’s three biggest cash crops in 2017 were seed crops, coffee and macadamia nuts. The seed crops, mostly corn shipped to farmers elsewhere, were valued at $120.8 million; macadamia nuts, $53.9 million and coffee, $43.8 million.

The biggest crop most often eaten here, papaya, finished a distant eighth on the list, with a value of just $9.4 million – far behind a number of other agricultural products, including cattle, which represented $43.9 million, and algae, which can be used for biofuel and generated $35.2 million.

In brief, much of Hawaii agriculture isn’t really aimed at feeding Hawaii.

Adding to the competition for agricultural resources is something that has nothing to do with growing anything at all. Wind and solar farms, which are considered agricultural uses under land-use laws, can generate more revenue for property owners than food crops.

And if profit motive were not enough, Gov. David Ige has helped set power companies and farmers on a collision course. While Ige has said he wants to double Hawaii’s food production from 2014 levels by 2030, the governor has gone further to promote developing wind and solar farms on agricultural land by requiring all of Hawaii’s electricity to be produced with renewable resources by 2045.

Amidst these Goliath business forces, farmers like Yang are true Davids. And, like farms everywhere, they often face unavoidable operating expenses. Yang says he probably wouldn’t be around but for a Small Business Innovation Research grant he received from the USDA. Although he now works as a farmer, he’s trained as a scientist, with a bachelor’s degree in meteorology from the University of Hawaii. The $500,000 SBIR grant was to study whether mushrooms could be grown using stuff like composted tree trimmings as substrate.

It took nine years to turn a profit growing mushrooms, he says. During that time, he supplemented his income with money from a recycling business he also owns.

Labor is Yang’s biggest operating expense, in part because he pays an average of $15 an hour for his five full-time employees and one part-timer. He also pays for health insurance for the workers, as the state requires.

In other areas, Yang has managed to keep operating expenses relatively low by using clever hacks. His farm’s footprint is a case in point. He manages to operate on just one-fifth of an acre primarily because he grows his mushrooms on racks in refrigerated shipping containers instead of spread out on the ground. He started with one refrigerator, scaled up to a walk-in cooler, then a 20-foot container and finally a 40-foot container.

He now has six such containers in all, spread out in a row at the farm, where the workers spend the day listening to classic rock like Led Zeppelin, Jimi Hendrix and the Clash blaring from a sound system amidst the mushroom funk. Theoretically, Yang says, he could continue to grow his production without increasing his footprint merely by stacking containers.

In any case, he pays about $3,000 per month for land, which is his second-largest expense after payroll.

Yang’s third major expense is energy. He’s been able to reduce his energy bill by using solar panels and energy efficient refrigeration systems, he said. But he’s still paying about $1,200 a month for power.

Other expenses can be minimized even more. Yang gets the tree trimmings that he needs to compost into substrate for free from arborists who otherwise would have to pay to dispose of the waste. He doesn’t need much fertilizer. And he doesn’t need much expensive equipment: mainly modified, used shipping containers and a used forklift and Bobcat loader to move stuff around. That means little debt to service: only a small loan from the USDA’s Farm Service Agency.

Like most businesses, he has taxes to pay, including a 4.7% general excise tax. Although the Legislature has carved out numerous exemptions to the infamous GE tax over the years, including GE tax breaks for things like ship and aircraft repair companies and oil refineries, Hawaii farmers still pay full freight. Changing that is one thing that could help, Yang said.

Still, Yang says, while farming is hard, he makes enough.

“If I wanted to make a whole bunch of money, I wouldn’t be in Hawaii farming,” he said.

Brand, the lettuce farmer who is a partner in Kunia Country Farms and Ko Hana Hawaiian Agricole Rum, agrees.

“The big question people want to know the answer to is, ‘Can you make money farming?’” he says. “There answer is, ‘Yes.’ But not as much as people would hope for.”

Brand says using Hawaii’s comparative advantages is the key to scaling up Hawaii’s food production. A former derivatives trader on Wall Street, Brand rose from Merrill Lynch’s trading desk to become the president of the company’s Asia operations, based in Tokyo. And he presents a pragmatic framework for growing food here.

He says the strategy should be based on three main questions: What crops can we grow? Can the crops be grown in ways that are consistent with Hawaii’s ethos concerning things like environmental protection? And can the crops be scaled up to a point where they can be sold in Hawaii as cheaply as imported products?

Hawaii-grown food’s biggest advantage is it doesn’t have to be shipped here, which reduces costs. Things that perish easily and need to be shipped in refrigerated containers have an even greater advantage, Brand says.

Those concepts led Brand to leafy greens, which Kunia Country Farms grows on a 3-acre aquaponic farm.

Kunia Country Farms spent 10 years growing to what it is today. Like Small Kine Farm, Kunia also has multiple ways to keep operating expenses down. A water catchment system collects water that flows through a series of rectangular beds where the lettuce grows floating on reusable foam trays. A system to pump oxygen into the water is powered by rooftop solar cells. Instead of soil, Kunia uses coconut husks. Fertilizer comes from tanks of tilapia, which Kunia also raises.

The result is 5,000 pounds of lettuce per week and 750 pounds of tilapia per week. And he’s able to sell it for less than many out-of-state competitors.

“If we can’t make food cheaper, we need to think about what we’re doing,” he said.

Will ‘Hawaii’s Largest Restaurant’ Step In?

Farms now have numerous tools they can use to expand, says Kleissner, who has been working to create an inventory of such resources.

Grants are available from numerous sources, including foundations and public charities. Farms can get low-interest loans, and loan guarantees are available. In addition, organizations such as the Trust For Public Land receive government and philanthropic grant money to buy land to keep in conservation, which includes farm uses. The trust in some cases resells the land at a discount to farms, reducing transaction costs for farmers, Kleissner said. And there are a variety of subsidies available: for things like processing, feed and transportation.

Another key to enabling farms to scale up, Brand says, is to have large institutions agree to buy produce from local farms. One such entity, often cited as “Hawaii’s largest restaurant,” is the statewide school system.

It’s not just a matter of creating a base of demand, Brand says. Farmers can also borrow money against such contracts, which can allow the farms to grow. And the farm can take out relatively inexpensive crop insurance to offset the risk that something unforeseen will wipe out a crop.

There are a number of challenges associated with getting the schools to step in, says Kristen Jamieson, who is working to solve that problem as a farm-to-school coordinator with the University of Hawaii’s College of Tropical Agriculture and Human Resources.

Among other challenges, she said, is school cafeterias often have to retrain cooks to work with fresh ingredients and there’s a general push to make menus uniform across the statewide system.

Nonetheless, Brand says such large contracts are key to the future of farming to grow food in Hawaii. It doesn’t matter so much whether the buyer is a government agency, private entity or consortium of private buyers, he said. His rum company, Ko Hana, benefited from such a contract with the Hawaii Emergency Management Agency when the COVID-19 crisis hit: Ko Hana landed a contract with HIEMA for 50,000 gallons of hand sanitizer, Brand said. And that allowed the company to pivot.

A big contract for mushrooms from Hawaii’s schools could let a small farmer like Yang quickly grow, assured there would be a base of business, Brand says.

“This is where if the DOE said, ‘Here’s your contract,’ he’d step into it,” he said.

Yang isn’t so sure.

The idea of taking on one large customer isn’t that appealing, Yang says. He would rather grow and spread widely, “like a pancake,” he says. He’s concerned about being too dependent on one customer, he said, even though he understands that contracts by nature allocate risk between the parties.

That said, Yang acknowledges he could go a long way toward filling the state’s demand for mushrooms by scaling up his farm.

“One acre is enough,” he said. “We could do 2 million pounds with one acre of land.”

Hawaii Grown” is funded in part by grants from the Ulupono Fund at the Hawaii Community Foundation, the Marisla Fund at the Hawaii Community Foundation, and the Frost Family Foundation.