Why milk costs $9/gallon in Hawaii

A 1920 law is to blame

Hawaiians pay more for their milk than the lower 48. It’s tempting to chalk this one up to “transportation costs.”

But should shipping milk from the mainland US really double the cost? The math says “no.” Container shipping is incredibly cheap on a per-unit basis; shipping cost should add ~$1.50 per gallon.¹

If physically hauling a refrigerated gallon of milk across the Pacific costs on the order of $1–2, but the retail price gap versus the mainland is more like $4–5 per gallon, the main culprit is not “the ocean.” Instead, a 100-year-old law is to blame:

The Merchant Marine Act of 1920

Section 27 of the Merchant Marine Act (better known as the Jones Act) requires that all goods transported via water between US ports be carried by ships that are US-made, US-owned, and crewed by US citizens/US permanent residents.

Foreign-flag ships can bring containers from Asia straight to Hawaii with no problem. But if you want to move milk from California to Hawaii, that’s a voyage between two US points, so the law requires you to use a tiny fleet of Jones Act-compliant ships.

What does this do to shipping costs?

Jones Act ships are not just “a little more expensive.” Recent estimates put the construction price of a Jones Act-compliant product tanker around $200–250 million, while a similar ship built in South Korea runs about $45–52 million: Jones Act compliant ships cost roughly 4-5x more.

And Jones Act-compliant ships don’t just cost more to build, they also cost more to run: according to a 2011 report from the US Maritime Administration, US-flag vessels have daily operating costs more than twice their foreign-flag counterparts:

Put those together and you get a small, high-cost, quasi-monopoly fleet serving America’s domestic shipping needs. One detailed estimate from the Grassroot Institute pegs the total cost of the Jones Act to Hawaii at about $1.2 billion per year.

Why can’t Hawaii make its own milk?

Hawaii is an interesting case, because historically, local dairies used to supply nearly all of Hawaii’s fluid milk: a state-funded study notes that until 1984, no milk at all was imported, and Hawaii’s peak milk production in the late 1980s was about 160 million pounds per year.

And yet the same study notes that Hawaiian dairies have declined since then. As of 2025, Hawaii has one remaining dairy, leaving the state to now import over 90% of its milk. Why are Hawaiians producing less of their own milk, especially when milk is so expensive? Wouldn’t higher prices provide an incentive for more Hawaiian dairies to open?

There are three big constraints: land, regulation, and feed.

Constraint #1: Land (cows vs hotels)

Pasture takes up lots of space, which is a limited commodity in Hawaii: it has the most expensive land of all 50 US states.

Hawaii’s agriculture accounts for ~1% of Hawaii’s GDP, tourism accounts for ~22%. Any time the opportunity cost of “land with cows” is “land with tourists,” the tourist wins.

It should come as no surprise that the state’s one remaining commercial dairy, Cloverleaf, is on Hawaiʻi Island (“The Big Island”), where there’s more agricultural land and less direct pressure from resort development than, say, Honolulu.

Constraint #2: Regulation (manure is gross)

Every state has to follow the federal Clean Water Act, but Hawaii has to be particularly paranoid, because the whole state is essentially coastline.

Even when you get further inland, Hawaii is full of steep slopes, thin volcanic soil, and shallow aquifers. Whatever runs off a pasture or lagoon is likely to quickly end up in someone’s stream or snorkeling spot.

The Hawaii Department of Health takes a more “zero tolerance” stance on livestock waste than a lot of mainland farm states. “Zero discharge” systems are possible, but expensive, with a lot of size-insensitive costs: a 10,000-cow operation in California can amortize them over a larger volume of milk, but Hawaii’s one remaining 500-cow dairy lacks that scale.

Constraint #3: The need for feed

Even if you solve land and permitting, cows still need calories. Where do those calories come from?

Modern dairy cows are usually fed a mix of pasture/forage, plus energy-dense feeds like corn and soy. Hawaii does not have a big grain belt like the mainland US. Hawaii has some tropical grass, but that precious resource, when it is fed to livestock, is reserved for beef cows, not dairy cows. Even back in the 1970’s, reports noted that “except for some grazing for beef cattle, practically all livestock feed must be imported.”

So Hawaiian dairies buy a lot of their feed (upwards of 95% of it) from the mainland United States.

And that feed arrives, naturally, by ship.

Specifically, a Jones Act-compliant ship.

Yes, the same 1920 law that makes imported milk expensive also makes imported livestock feed more expensive. There is no getting around the Jones Act, even if you use your own dairy cows.

A 2016 Hawaii Business piece on feed costs reports that shipping feed from the mainland costs about $150–$200 per ton, which often doubles the total price of feed by the time it reaches local producers. And feed itself accounts for the majority of the total cost of raising animals.

The Jones Act means Americans can’t buy American

Hawaiians pay more for goods shipped from the mainland United States, whether it’s milk, feed for their cows, or anything else.

The mainland US is really good at supplying milk and feed (and US dairy also lacks competition thanks to protectionist tariffs on foreign milk), so Hawaii tolerates the high cost of Jones Act-compliant vessels. But in a lot of other cases, it’s literally cheaper to ship from Asia than from California even if it means traveling an extra 1,000 miles, because foreign ships are cheaper, and the Jones Act says you’re not allowed to use them for US-to-US routes.

In other words, the Jones Act is discouraging Americans from buying American.

You can see the same pattern even more starkly in Puerto Rico.

Puerto Rico is an island that relies on imports of liquefied natural gas (LNG) for around 35-40% of its energy needs. The United States produces plenty of LNG, and so it seems perfectly sensible to ship some of that LNG from Texas or Louisiana to Puerto Rico.

But to transport LNG US-to-US, the Jones Act says you need a LNG tanker that was built in the US. And that ship literally doesn’t exist. The world has hundreds of LNG tankers, but none of them are US-made, so none of them are legally allowed to carry LNG from Texas to Puerto Rico.

So Puerto Rico, because it is part of America, is forbidden from buying American. Instead, this US territory must import its LNG from countries like Russia, Nigeria, Oman, and Spain.

By the way, Puerto Rico’s neighbor, the Dominican Republic, is only a few hundred miles away, and is not bound by the Jones Act, because it is a foreign country. And the Dominican Republic is happy to buy American gas, with the US supplying 65% of its LNG imports. Puerto Rico gets 0%. Same ocean, almost identical geography, but different law.

The result: Americans can’t buy American, and so they must import.

The Jones Act has accomplished the opposite of its goals

When Congress passed the Merchant Marine Act in 1920, it was trying to lock in America’s shipbuilding dominance. In the wake of World War I’s emergency ship-building program, the US controlled roughly 22% of the world’s merchant shipping tonnage, turning the US into a major maritime power, second only to England.

The idea was to keep America’s industrial base alive. The thinking was that requiring US-to-US shipping to use American ships would guarantee domestic demand for American ships: more demand, more building, stronger industry.

How has that actually worked out? Not well.

Today, the Congressional Research Service describes US commercial shipbuilding as a “minuscule” share of the global market. China, South Korea, and Japan now build over 90% of the world’s large oceangoing ships; the U.S. builds about 0.2%.

In 2022, China had 1,794 large commercial ships on its orderbook, South Korea 734, Japan 587, and the United States had five. (China’s yards are building on the order of three hundred times as many big commercial ships as U.S. yards.)

In short: the policy designed to protect American shipbuilding presided over the near-total collapse of American shipbuilding.

And with a scarcity of American ships, Hawaiians pay more for shipping, and stomach the $9 milk bill.

Related reading:

Balsa Research - The Jones Act index

Why Can't the U.S. Build Ships?

1. I’m basing this on the fact that “super-cooled” containers can hold about 6,000 gallons of milk each, and quotes for moving that container from the West Coast to Hawaii range from around $5,000 to $15,000 in shipping costs.