Alexander & Baldwin Inc. has become the first owner of farmland in the state to voluntarily devote property to perpetual agricultural use under a controversial law passed last year.

The Honolulu-based company has preserved 30,878 acres on Maui and Kaua'i under cultivation of sugarcane, coffee, seed corn, rice, taro and cattle grazing.

The move, approved by the state Land Use Commission yesterday and in March, allows A&B to seek financial benefits from the state that could help shore up what have been money-losing agricultural operations for the company.

A&B, however, precluded itself from taking a controversial benefit allowed under the law that allows owners of prime agricultural land to convert land equivalent to 15 percent of the acreage protected for urban or rural use such as housing.

The Hawai'i Farm Bureau Federation applauded A&B for dedicating a "significant infusion" of high-quality ag land for perpetual farm use, and expected that more landowners large and small will use the so-called Important Agricultural Lands law.

"People often talk about how much they love agriculture, and want to see it stay in Hawai'i, but then do little to support the local farmers," Dean Okimoto, president of the trade association and owner of Waimanalo-based Nalo Farms Inc., said in a statement. "Agriculture is a business — it's not a lifestyle or a hobby. It has to be viable to survive."

Sandra Lee Kunimoto, director of the state Department of Agriculture, called the A&B protections a historic moment culminating from years of effort by state leaders, farmers and landowners.

STEMS URBAN MOVE

Supporters of the law say it's good for farming and will encourage large landowners such as A&B, Kamehameha Schools, Maui Land & Pineapple Co., James Campbell Co., Castle & Cooke Hawai'i and Grove Farm among others to stop converting ag land for urban development as they have done over decades.

The law also will provide financial incentives to help small farmers who own their land.

So far, the worst fear of conservationists — that the law would accelerate the loss of prime ag land — has not come to pass. Still, it remains to be seen what the long-term impact of the law will be in terms of how much land it preserves and at what cost.

Lawmakers initially passed a law in 2005 that established a process for private landowners and county governments to designate prime ag land. That law fulfilled a mandate issued nearly 30 years earlier at the 1978 Constitutional Convention requiring the state to identify such land so it could be protected from development. But incentives to encourage protection didn't pass the Legislature until last year as Act 233.

TRADEOFF IN LAW

Some conservationists and farmers feared the provision allowing for urbanization of some prime ag land would speed its loss.

The tradeoff was an idea introduced by the Farm Bureau in partnership with the Land Use Research Foundation, a research and trade organization representing large landowners and developers.

Supporters of the law believe the tradeoff will spur landowners to lock up agricultural property that may, in the long run, be converted to urban use through conventional land-use laws. They say that the loss of high-quality ag land without the incentive would be greater than 15 percent.

To qualify, the land for protection and conversion has to be in the same county. Also, the land for protection has to be certified as prime farmland by the state Department of Agriculture, and approved by the Land Use Commission.

Any conversion for urban or rural use would ultimately have to obtain a County Council zoning change before nonagricultural use could take place.

VETO WAS URGED

Opponents of the provision — including Earthjustice, Life of the Land, Sierra Club Hawai'i Chapter and some farmers — fear the law will expedite conversion of farmland for development and lead to a proliferation of rural residential subdivisions that contribute to suburban sprawl.

"True farmland protection doesn't come from giving away the farm," the local Sierra Club chapter said on its Web site last year as part of a plea for Gov. Linda Lingle to veto the measure.

Some small farmers were particularly concerned that rural residential subdivisions will pop up next to farms that could inflate property values and produce incompatible neighbors that threaten to displace farming.

Incentives in the law include $7.5 million in annual tax credits for investments in agriculture facilities, a $2.5 million loan guarantee program, expedited ag processing facility permits and allowance of employee housing on prime ag land.

COST TO STATE

The Agriculture Department said the primary cost of the incentives for the state will be the tax credits that may be claimed annually for five years.

A&B, as part of its petition to the Land Use Commission, waived all rights to seek any reclassification of land for urban or rural use in connection to the nearly 31,000 acres being preserved.

A&B could have sought to convert 4,632 acres for urban or rural use under the law.

A&B said it hasn't determined what incentives it might pursue. "We are in the process of assessing what agricultural incentives we may seek," company spokeswoman Meredith Ching said in a statement.

A&B said the decision to protect land under the law wasn't easy.

"We believe this confirms the Legislature's intent behind the IAL law — that using an incentive approach that supports the viability of agricultural businesses on agricultural lands will result in significant important agricultural lands being designated and protected in this state, sooner rather than later," Ching said.

MAUI, KAUA'I ACREAGE

On Maui, A&B protected 27,105 acres in ag use by subsidiary Hawaiian Commercial & Sugar Co., the largest sugar producer in the state.

On Kaua'i, the company protected 3,773 acres in ag use mostly by subsidiary Kaua'i Coffee Co.

A&B's agribusiness division last year lost $12.9 million, which compared with a $200,000 profit the year before.

The company largely attributes the loss to HC&S because of two years of record-low rainfall, suppressed raw sugar prices, increased costs, and decreased power sales revenue due to recent regulatory decisions.