Hawaii’s milk industry has new price rules after the state’s only processor, Meadow Gold, privately warned that it would quit buying milk from local dairies as of Thursday unless it could pay less than what regulators permitted.

The state Board of Agriculture voted 7-0 at an emergency meeting Monday to amend state Department of Agriculture rules governing wholesale prices paid to Hawaii farmers for fresh milk.

The change was actually sought by one of Hawaii’s two dominant milk producers, Big Island Dairy LLC, which was bought two years ago by Idaho-based Whitesides Dairy.

However, the owner of Hawaii’s other major milk producer, Cloverleaf Dairy, alleges that the move was a thinly disguised way to squeeze him out of the market.

"It will force me to come into line (accepting a lower price) or get out (of business)," Cloverleaf owner Ed Boteilho Jr. told the board.

It’s unclear what, if any, impact the change will have on prices consumers see on store shelves.

The board was prompted to vote after Meadow Gold representatives met with state agriculture officials about two weeks ago and said they can’t compete with imported mainland milk given state-imposed minimum prices for local milk. The company, which is owned by Texas-based Dean Foods, said it would stop buying Hawaii milk Jan. 1 if minimum price relief wasn’t granted, according to state officials.

Jamaison Schuler, Dean Foods spokesman, said in an email after the meeting that local milk producers should have the ability to compete with mainland imports.

"By legislating higher milk prices to subsidize local dairies, the state of Hawaii is only providing a false sense of security to dairy farmers and may ultimately lead to higher milk prices in the market," he said. "We cannot support assessing consumers a subsidy for the local milk producers."

The company submitted no testimony on the proposed rule change, which was the subject of several public hearings and meetings over the last six months.

Jerry Ornellas, a board member representing Kauai, said he was dismayed that Meadow Gold did not participate in public meetings on a proposal it appeared to be behind.

Michelle Galimba, a Hawaii island rancher and board member who missed Monday’s meeting but was on an investigative committee that had unsuccessfully tried to meet with Meadow Gold, said in a phone interview that the milk processor employed what she viewed as "corporate bullying" to improve its business at the expense of local farmers.

Scott Enright, Board of Agriculture chairman, said the proposed rule change was made in the spirit of open competition and came up about a year ago as Big Island Dairy sought to double its milk production.

Enright said Meadow Gold wouldn’t agree to buy more milk at the state-imposed minimum price. So Big Island Dairy petitioned the department to allow any milk producer to seek a waiver from the minimum price.

Big Island Dairy is expected to submit a waiver request Tuesday. The board can then consider granting the waiver.

Some industry observers contend that the nearly 50-year-old price rules and other protections for local milk producers have been overtaken by industry changes in recent decades.

The price protection was established through the Milk Control Act of 1967. The law aimed to provide farms with fair financial returns and eliminate "unfair, destructive and demoralizing trade practices" in the industry, where milk producers and processors had been at odds over production supply and prices.

At the time the law was created, local farmers supplied all the milk consumed in Hawaii. The farmers, however, had relatively low bargaining power with distributors and complained that the price for their milk had not significantly changed in 15 years despite dramatically higher production costs.

The law allocated production quotas and provided for a minimum price in any county where 55 percent of producers sought such protection. Minimums were established only on Oahu and Hawaii island because dairies on Kauai and Maui processed their own milk.

Nothing in the law forced processors to buy milk from local producers.

Since 1967, Hawaii’s milk industry has been reshaped dramatically. One big change occurred in 1985 when Safeway began importing milk a few years after heptachlor was detected in milk from local cows eating pineapple tops treated with the pesticide. High real estate and feed costs also helped put many local dairies out of business.

Today, Cloverleaf and Big Island Dairy on Hawaii island are the sole big milk producers locally, while mainland milk accounts for about 80 percent of the supply in Hawaii.

Historically, milk producers have petitioned to increase minimum prices.

The minimum price for Oahu was last fixed several years ago to equal the wholesale price in California plus transportation cost, or $1.05 per gallon over the California price. A floor and ceiling also were set at $2.36 and $2.71, respectively. The Hawaii island minimum is $3.06 and is tied to production costs.

In December, the California price was $2.04. The California Department of Food and Agriculture projects the price will drop to $1.68 in January.

Boteilho said milk processors have survived with even lower prices before.

But Enright said the industry is under increased pressure from distributors that only import mainland milk. He said the Coca-Cola Co. is expected to enter the milk business soon, and that Meadow Gold claimed it could no longer afford to buy local milk at the set minimum prices.

"This marketplace is demanding that the dairies be competitive," Enright said. "I don’t think Meadow Gold is just blowing smoke."