The value of agricultural land has historically rested on access to water and the increasing water regulations that are coming into effect are going to play a critical role in land assessment moving forward. The industry has been preparing for the implementation of the Sustainable Groundwater Management Act (SGMA) for quite some time and it has already been having an impact on the value of agricultural land.
“There’s always been a difference between land values as far as the land that has more access to surface water rights and also has good wells versus land that’s well water only,” said Roland Fumasi, Vice President and Senior RaboResearch Analyst for RaboAgrifinance. “We’re starting to see a greater divergence in the data.”
With some Groundwater Sustainability Plans been recently submitted for approval, surface water access will become an even more valuable asset as time goes on. There is significant concern among the agriculture industry as to just how many acres are going to need to be fallowed to meet the requirements of California’s water regulations and what that is going to mean for the value of some of their properties.
“We certainly have clients that own twice as much land as they actually farm so that they can continue to have enough water for the land that’s actually planted,” Fumasi noted. “We are going to see some fallowed ground, no doubt about it. I’m hoping that the amount of ground that ends up having to be fallowed is mitigated by this aggressive move towards voluntary agreements.”
As water rules come into shape, Fumasi highlighted the concern that it will make irrigation districts more reluctant to sell excess water to other districts as banking the water in groundwater recharge becomes more incentivized. “I think it’s going to take a higher water price to move surface water out of district. I think that’s going to be another piece that changes this whole chess game,” said Fumasi.