April 04, 2021
California's Water Infrastructure: Sustaining Agriculture
California boasts some of the most substantial infrastructure for water distribution and some of the most innovative water governance in the country. While the state is known for having complex water politics, this hasn’t stopped it from becoming America’s biggest agriculture powerhouse - in fact, its agriculture has become more efficient at using water over time.
Still, prolonged dry spells are a feature of California’s Mediterranean climate, and navigating fluctuations in water supply is something farmers must pay close attention to, especially during times of drought. While farmers have access to water from both above and below ground, each of these sources fluctuates seasonally, and over-using them can have a lasting impact.
As California confronts another drought, we thought it would be important and informative to dive into the state’s hydrology and avenues of water supply, and discuss some of the factors farmers and farmland owners must think through in order to manage water sustainably.
California’s Hydrological Reality
Much of the infrastructure that supplies water to farms in California was designed around two imbalances between water supply and demand.
Imbalance one: Most of the precipitation across the state falls at times of year when plants need it least. And though California’s crops require hot and dry summers to develop properly, they wouldn’t be able to grow at all without some water. Farmers in California can work around this by irrigating; irrigation enables farmers to control when crops receive water rather than simply relying on rainfall alone.
Imbalance two: The majority of California’s people and productive agricultural counties are in the southern half of the state, while 75% of the whole state’s precipitation falls north of Sacramento. As a result, getting water to everyone who needs it and maintaining a consistent supply throughout the year, particularly during drier months when irrigation demand is high, presents a logistical challenge.
California has found several innovative solutions to address these last two challenges. First, two major surface water diversion projects - the State Water Project and the federally-managed Central Valley Project - and an array of canals and aqueducts now redirect water from snowmelt, rivers, lakes and reservoirs primarily in the north, to water users all over the state. This has allowed farmers to take advantage of fertile soils in the drier southern reaches of the valley, using irrigation water transported in from elsewhere. It has also fundamentally reshaped the hydrology of the state, as an average of 75 million acre feet of water are redirected annually. Allocations of this water to specific users are managed by irrigation districts and distributed by the government agencies that control the diversion projects.
Second, instead of relying on surface water alone, many farms in California pump their water up from underground aquifers. The Central Valley is the second-most-pumped aquifer system in the US, after the Ogallala Aquifer in the Midwest.
Groundwater pumping in California reached an inflection point during the historic statewide drought that began in 2011, and the state government responded by passing the Sustainable Groundwater Management Act (SGMA) in 2014. SGMA mandates that all basins be sustainably managed by 2040, and gives local agencies authority to develop plans to avoid or mitigate six undesirable impacts on the landscape. In the past, overdrafting of aquifers has caused land subsidence, water quality degradation, permanent shrinking of the aquifers’ capacity, chronic drawdown of interconnected surface and groundwater basins, and even intrusion of seawater for aquifers near the coast.
Broadly, this all means that modern-day California’s patterns of water use are reflective of decades of creativity by industries, government, and individuals geared toward getting the most out of a limited natural supply, and moving that supply around the state according to demand. Still, farmers need to maintain the health of their crops throughout a growing season, and throughout California’s oscillations between wet and dry, regardless of that year’s supply and climate conditions. Understanding their farm’s hydrology and having flexibility in how they access water can empower them to operate both sustainably and productively.
A Farm’s Hydrology and Water Budget
A farm’s overall hydrological reality is determined by its soils, the crops grown on its land, its access to different types of water sources, its location and climate, and its region’s history with water management.
Let’s start with the crops and soils themselves. Each crop has unique demands for water, both in the amount they require and the timing with which they need it delivered, based on their maturity and life cycle. The soils, meanwhile, are the medium the crops use to access water and nutrients for their growth.
Good soil water holding capacity can reduce a farm’s overall needs for irrigation water. Some percentage of each irrigation is always lost to evapotranspiration, runoff, or drainage beneath the rooting depth of the crop, and soils that can hold water for longer at the right root depth for the crop to access it will be less water-demanding.
Based on soil characteristics and the crop’s water needs, farmers can budget how much irrigation they will deliver, and when, from whatever supply they have available. That supply can come from several different sources, and having options for how to access these sources can shape the way a farmer approaches this budgeting exercise.
Different Types of Water Supply
A typical Central Valley farm can obtain irrigation water from three principal sources: riparian access to a river, access to a surface water allocation from an irrigation district, and from a well that pumps water from an aquifer. All three of these are bound to fluctuate seasonally, albeit at different rates. Rainfall and snowmelt will recharge both rivers and aquifers, but aquifers will recharge more slowly than rivers, as the water percolates deep down beneath the upper layers of the soil.
Surface water obtained through an irrigation district allocation, meanwhile, will fluctuate according to how the government agency that controls the district forecasts supply for that water year. In dry years, this allocation might be slim; on the other hand, districts might choose to ‘bank’ water in reservoirs during wet years in the event of a dry spell in the future. Eventually, these allocations are distributed based on a water rights system for all farms with a permit to access water from the district, and there are various levels of “priority” to those rights.
For a farmer, effective water budgeting relies not only on knowing the hydrological profile of the land, but also understanding their supplies of water and anticipating how those supplies could fluctuate. There are some backup strategies farmers can employ if these three main supplies are insufficient - for example, banking water from rainfall in holding ponds, or purchasing water from other farms. But beyond these safeguarding measures, the farm’s geographical location and management history can be a source of clarity.
The Importance of Location and History of Management
As we discussed, California is defined by mis-alignment of both the geography and timing of supply and demand for water. Farmland owners and farm operators can evaluate the sustainability of their water budgets with this in mind, and will often strategize differently based on regional characteristics.
In the northern Central Valley, having even just one source of water can be sufficient if the amount of water available from that source regularly exceeds the water demands of the farm. Generally, this is true because the region experiences disproportionately more precipitation, so locally-available supply will be more plentiful. Even with all the withdrawals of surface water redirected to the south, there is still usually ample precipitation to recharge rivers and aquifers.
The southern Central Valley is a different story. Because of a relative deficit of surface water supply locally, most hydrological basins to the South of Sacramento rely more heavily on water pumped in from irrigation districts, and water pumped up from wells. In dry years, when district allocations are lower, farmers have come to rely more and more heavily on pumping of groundwater. In fact, SGMA was prompted largely by unchecked groundwater pumping in the southern two-thirds of the valley during the drought that began in 2011, and since its passage has designated many groundwater basins in that region as critically overdrafted.
Farms in the southern Central Valley often will need access to multiple water sources to have enough total water to continue meeting their yearly budget during dry spells, especially if the farm is reliant on groundwater. For example, this could mean having access to both district water and well water, or multiple wells on or near the same property.
Good Farmland Investing Involves Expert Underwriting & Innovative Strategies to Preserve Water Supply
When it comes to water budgeting and sustainability, having redundancy and flexibility in water supply helps immensely. Good farmland investing involves understanding the hydrological reality of any property and adjusting irrigation strategies based on this reality, including according to California’s oscillations between wet and dry. After all, both land and crop will be more valuable if ample, high quality water can be assured in the long run.
Besides having multiple sources of water on each farm, farmers and operators can employ other innovative strategies to manage water risk. An operator managing multiple farms can co-locate operations and share water between properties at times of need; alternatively, if a neighboring operator has a surplus, an operator in need of more water could purchase it from them. In fact, selling and marketing water has become a significant economic activity unto itself - as of late 2020, the NASDAQ now features a California Water Index that tracks the spot price for water transactions and can be used as a price discovery mechanism for these transactions.
Importantly, all actors within a basin should also cooperate on sustainable management of their resources through effective planning and deployment of the right technology and infrastructure. The need for sustainable and responsive management is a big reason why FarmTogether takes water resources so seriously during the due diligence stage of investing.
Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.
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