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SGMA and Land Value March 22, 2021

By Paige Gilligan, Risk Mitigators & Advisors, Special to WaterWrights.net

Even though I am a transplant from the Midwest where my grandfather was a row crop farmer, I love the seeds of opportunity that the previous generations of farmers and producers in California have planted for us. I believe that it is our responsibility to the future generations to continue to be resourceful, ingenious, and entrepreneurial.  If you have not read the last annual report from the California Department of Food and Agriculture, I highly suggest you read the entire 73-page report. When I look at all the amazing things that agriculture brings to the people of California and the world, it is for that reason that I advocate the importance of water.

Building on last month’s article, I will continue to delve into the complex issue of the Sustainable Groundwater Management Act (SGMA) and how it may affect your land holdings, production, or general agricultural business. For decades, people in the Western United States have been heard saying that “whiskey is for drinking; water is for fighting.”  I have also heard people say, “Water rights –now them there are fightin’ words.”  While the water attorneys in the West have definitely been a historical winner in the battle over who can use water and how it can be used, individual landowners and growers do have a say in the topic. They are also one of the main stakeholders in the discussion. Farmers and producers have been practicing sustainable, regenerative agricultural practices for centuries. They know that quality crops cannot be grown without quality soil and water and favorable weather. Growers are resourceful, ingenious, and entrepreneurial.  Without them, I do not believe that California would have been able to become, let alone maintain, its status as an agricultural powerhouse.

SGMA became law in the Fall of 2014.  It requires that governments and water agencies of high and medium priority basins halt overdraft and bring the groundwater back into balanced levels of pumping and recharge (i.e. sustainability) within 20 years of implementing their plans.  For most of the Central Valley (and all other critically over-drafted basins), that timeframe would be by 2040.  For the remaining high and medium priority basins, 2042 is the deadline.  I mention these dates to bring reality to the situation. We have all heard a lot about SGMA and the fear factor that is marketed along with it.  Headlines have touted millions of acres of productive farmland will be fallowed, thousands of agricultural workers will be without jobs, rural communities will disappear and blow away with the next dust storm.  I am here to tell you that that does not have to happen to that severity if we plan now. Growers and landowners continue to work diligently to come up with solutions for managing the groundwater.

It is a very scary time for a lot of folks, but rest assured, I have faith that the growers and producers will come up with some amazing solutions. After all, back in the 1960’s drip irrigation was a new irrigation practice.  It was unknown and expensive, but farmers needed to be more efficient in their operations and began implementing this new and unknown method. Drip irrigation is now used on about 40 percent of farmed acreage in California (using 2019 data) and is the standard for most permanent plantings.  The timeframe for this to become mainstream has been 50+ years.

Another important fact to consider is the age of farmers. Based on the 2017 Census of Agriculture, the average age of farmers in the U.S. is 59 years.  Young producers (age 35 and younger) account for nine percent of all farmers in the U.S.  I bring these statistics up for a couple reasons.  First, the average farmer if they work until they are 70 has about 10 years of active farm management remaining.  For young producers, that number is 35 years. Secondly and more important to me is that SGMA sustainability levels do not need to be reached for approximately 20 more years. The young producers now are going to be the ones that will have to maintain the sustainable groundwater levels in order to continue to farm.

That is where strategic planning, estate planning, and water management all come together. Understanding the water risk on your property now as it relates to SGMA, is a requirement not a “nice to have” amenity like heated and ventilated rear seats in your pickup.  As farmers and ranchers continue to be resourceful and ingenious, it is important to understand where you are starting from, so you can understand where you need to go.  Risk Mitigators & Advisors can help you gain that understanding from an objective and independent perspective.  Once you understand how the GSA (Groundwater Sustainability Agency) is viewing your property, you can develop a realistic approach to transitioning to a sustainable yield.  Remembering that you have 20 years to meet that end goal. Many producers have annual goals, five-year projections, and plans to pay off the land mortgage in less than 15 years. Putting things into perspective, your water use plan is more long term than your land mortgage.

Even so, you need to start now. GSAs are starting to consider transitional plans and putting more information out for producers to plan. For example, if the sustainable yield for your area is 0.5-acre feet per acre (AF/Ac) and the current average usage is 2.5-acre feet per acre. The “plan” will be to decrease usage by 2.0 AF/Ac over 20 years. Assuming a straight decline, the area would have to decrease usage by five percent per year to reach the goal. Five percent of 2.5 AF/Ac is 0.125 AF/Ac per year. That number is not as scary as cutting your water usage by 80 percent. They are both real numbers, but one puts a lot more fear in the public domain. Being a relationship-based consultant, I prefer to focus on the five percent now with my clients and develop a strategy with them to meet their overall business goals for the next 10 years. As operations are transitioned to the next generation, those discussions can continue based upon updated information, technologies, and needs.

If you are interested in learning more about the water risk on your specific property, reach out to us and we can have a discussion on what works best for you. Our office number is 559-549-2850 and our email is Admin@RiskMitigators.net.

DISCLAIMER OF RESPONSIBILITY; Waterwrights strives to provide clients with the most complete, up-to-date, and accurate information available. Nevertheless, Waterwrights does not serve as a guarantor of the accuracy or completeness of the information provided, and specifically disclaims any and all responsibility for information that is not accurate, up-to-date, or complete.  Waterwrights’ clients therefore rely on the accuracy, completeness and timeliness of information from Waterwrights entirely at their own risk. The opinions expressed in this report are those of the author and do not represent any advertisers or third parties.

ALL RIGHTS RESERVED.  Copyright 2021 by WaterWrights.net

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