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Island in the Stream

Riding the wave of high-tech money last year, Kauai's economy may be swimming upstream in 2001.

The new millennium has been very good to Kauai. Just a short year ago, mainland money — with a heavy dotcom accent — was flowing freely through the island. Kauai’s real estate market, on a steady increase since the late ’90s, turned white hot in 2000 when the island’s inventory was exhausted in early spring. As a result of the activity, the number of construction permits for the private sector came close to equaling the number during the reconstruction after Hurricane Iniki in 1994.

At $153 million, the valuation of those permits was more than 20 percent higher than the previous high of approximately $120 million in 1994. Finally, unemployment rates dropped for a fifth straight year from 7.7 percent in 1999 to 6.5 percent in 2000, the biggest drop throughout the state.

Tourism, Kauai’s main economic engine, also was firing on all cylinders for much of 2000. Arrivals increased slightly from over a million visitors of 1999. Hotel occupancy rose from 72.2 percent in 1999 to 73.5 percent in 2000. So it was no wonder that last year Sue Kanoho, executive director of the Kauai Visitors Bureau, was predicting that by 2002 the island was going to surpass 1.2 million visitors a year, the previous high set before the hurricane.

So if things are going so well, why is Kanoho so concerned?

“Things were going gangbusters last year,” says Kanoho. “But now it looks like the pendulum has swung the other way. I just got my April arrival numbers and they’re about 10 percent down from what we saw last year.”

Kanoho attributes the drop off of arrivals to the shattered stock market, the slumping national economy as a whole, high fuel prices and the current energy crisis in California. Specifically, she says that she has seen the biggest drop off in business travel to the island.

“The global issues are just too irresistible,” Kanoho says. “When you are facing the decision of paying your electricity bills or going on vacation, what are you going to choose? Hawaii as a whole is at the mercy of what is happening in the rest of the world. The Gulf War showed that for sure.” Just a year ago, Kanoho was busy implementing the visitors bureau’s marketing campaign that targets specific consumers with specific activities, a strategy that better brands the island. While that campaign continues, Kanoho has shifted gears, working with hotels and travel companies to promote the affordability of the island. “We need to continue to brand our island, but we also need to drive business to Kauai right now.”

But things may not be as bad as they seem. “I’ve been on the phone with many of our people here, and they say that they are doing OK. If things were really bad, my phone would be ringing off the hook,” says Kanoho. “It sounds like it might be a decent summer.” While the slumping national economy has affected Kauai’s visitor industry profoundly, the island’s real estate sector seems almost untouched by the downturn, and that industry has been hot to touch for the past three to four years. Single-family home and condo sales volume as well as their average prices all increased in 2000. With the average home prices jumping almost $100,000 from $325,000 to $418,000 from 1999 to 2000, Kauai has seen a tremendous influx of big mainland money, especially on its pricey North Shore.

“I haven’t seen a downturn in anything yet, not in the market that I’m dealing with,” says Ken Kubiak, broker-in-charge for Century 21 All Islands, a real estate firm that sells property on the North Shore. “In fact, the stock market downturn may have actually spurred a lot of people to take their money out and put it in something else like real estate. We are still strong.”

Last April, Kubiak broke ground for the Villas on the Prince, 41 two-story townhomes in the Princeville resort area. The Villas is one of the only two non-timeshare condominium developments built since the hurricane, and the development, with units ranging in price from $392,000 to $487,000, was sold out before construction began. Buyers hailed from all around the country.

“We put the first 20 units into escrow almost immediately,” Kubiak says. “There was a little slowdown for a short while, then things took off again. We sold out in a three- to four-month period.”

The buying spree was evident all throughout the Princeville resort. According to Kubiak, total dollar volume sold in the area increased by 35 percent from $54.1 million in 1999 to $72.8 million in 2000. That is more than a 300 percent increase from the $22.7 million in 1996. Kubiak adds that in some cases he has seen prices for individual units rise as much as 100 percent over the past couple of years. Kubiak’s early numbers are slightly behind those of 2000, but he is predicting a strong summer. “If I knew things would be this good, I would have gotten out of the stock market months ago,” Kubiak says.

On Nov. 17, 2000, trucks hauled Lihue and Kekaha plantations’ last sugar cane crop, ending a 150-year tradition and sending 400 people to the unemployment line. But, according to Gini Kapali, director of Economic Development, Office of the Mayor, sugar as an industry has been sour for nearly a decade.

“Sugar has been so good to this island, maybe too good,” says Kapali. “It was in the blood of many generations so it was emotion that kept it around for this long.” Kapali believes that filling the void left by sugar’s departure with other agriculture industries is essential to the island’s future. Not only do these industries offer products and jobs in their own right, but they complement the tourist industry, the island’s top provider for now and for the foreseeable future. According to Kapali, a strong and vibrant agriculture industry creates a quality of life that keeps the island healthy and the tourists coming.

According to Bill Spitz, economic specialist with the Office of Economic Development, while diversified agriculture hasn’t—nor will it ever—replace sugar, it has already equaled if not surpassed it on a dollar-for-dollar basis. Despite a continuing fight with banana bunchy top disease on the eastern end of the island and a couple of failed papaya crops, the future of Kauai’s agriculture industry looks bright.

“While no single crop will take up the 200,000 to 300,000 acres that sugar took, I do see a niche for specialty fruits for the mainland that looks very promising.”

Kauai continues to lead the state in taro production with 4.8 million pounds processed (about 70 percent of the state’s total output), up from 4.3 million pounds in 1999. With the successful opening of Kauai’s first poi mill since the early ’60s by Hanalei Poi Co., Spitz is expecting to see another increase in 2001.

Papaya production fell in 2000 to 3.9 million tons from 4.7 million tons in 1999. This drop off is attributed to the failure of two papaya farms in Koloa on recently converted sugar land and the financial troubles of the island’s only papaya packing facility.

But Spitz believes that the industry will be able to recover from its troubles. “The importance of papaya is that it is a product that we can export out of the Hawaiian market,” Spitz says. “We don’t have a lot of crops that we can do that.”

Meanwhile, sugar production dropped from 917,000 tons in 1999 to 751,000 tons in 2000.

One product that Spitz has very high hopes for is range-fed beef. His office, with the help of the University of Hawaii, is investigating the feasibility of bringing beef to Kauai, which has the most fertile grasslands in the state. According to Spitz, cattle ranching is a fast near-term use for Amfac’s sugar lands in Hanamalu and Wailua, which will soon go fallow. In addition, range-fed beef is a marketable product, lower in fat and with less use of antibiotics than grain-fed cattle. If done well and with the Kauai brand on it, Spitz believes that it would do well on the mainland.

“Agriculture will be about the smaller guys who will find the niches. These will be family operations, and they will make a good living,” says Spitz. “I think we will take two steps forward and one step backward for a while. But people tend to forget that the plantations started as a whole bunch of small growers. You never know what can happen.”

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