Leonard Van Elderen: Water is the value that runs farming
11/16/2013 5:26 PM
11/16/2013 5:27 PM
The financing of a farm is tied squarely to the land. The land has value that allows the lender to provide the loans. That value comes from the land’s ability to grow the crops. And that requires water.
Water is an emerging concern for Central Valley agriculture on several fronts.
There is the current short-term crisis for many farmers due to the lack of rain and snow. There is the prospect of state regulators redirecting water from farmers to the environment along the San Joaquin River and its tributaries, in the heart of Stanislaus and Merced counties.
Groundwater extraction seems to have reached, and in some cases exceeded, its sustainable limits. And there is the continued gridlock in the Sacramento-San Joaquin Delta, where regulations are constricting the water system’s ability to capture sufficient supplies when nature makes them available.
For now, the lending environment for agriculture is relatively strong. Farmland continues to possess considerable value. Land prices are rising. But the emerging concerns about water – both in their sheer number and their serious nature – seem of greater long-term concern than ever before.
Lenders certainly don’t have all the water solutions for California. But we don’t want to wake up to a problem where land loses value and the financial ability to farm begins to dry up.
Lenders don’t make long-term loan decisions based on the recent weather, no matter how wet or dry. The land provides the financial security for the long-term loans only as long as the crops provide the income to pay for property, trees and vines, and other major capital upgrades.
Operating loans for short-term needs such as payroll, seed and fertilizer are tied to the long-term success of farming. The foundation of the agriculture money cycle is a relationship rooted in the long haul and the land. Of our nearly $2 billion in loans to farmers in the Central Valley, about 85 percent is to be paid back over many years.
To lenders, farmers are not simply account numbers. We support their effort to succeed and their effort to hand this passion to yet another generation.
Every part of this sector takes great pride in this valley’s remarkable ability to grow the farm products that are served at kitchen tables throughout the nation and world.
Instability and uncertainty are not our friends, particularly when it comes to water.
The Delta, providing water to more than 2 million acres of Valley farmland, is a primary case in point. The short-term regulatory environment is bleak. Struggling fish populations are triggering restrictions on winter pumping when the availability of water is at its greatest. There may be a long-term solution that is emerging through a state and federal process known as the Bay Delta Conservation Plan. But for now, potential supplies are not making it to farms. Reservoir levels are low. And this record dry year has many farming communities on edge about what will happen next year. There is no reason to use an operating loan when there is no water to grow a crop.
Lenders worry about risk. Water has rapidly risen to the top of the list of risks facing the industry. There was once a sense that water availability in the Central Valley was not a primary risk for the long term. That calculation is changing.
There was always great faith that when prices for commodities like almonds or walnuts come down to more typical levels, we can still pay the costs to farm including payroll, seed and fertilizer. But with the physical limits of water and the numerous efforts to redirect water away from farms, we may be facing a structural change in farming.
Land has farming value only if it has sufficient and reliable water. Long-term water solutions are essential to ensuring that money can continue to flow from lenders to farmers and to all beneficiaries of our agricultural economy. That includes all of us as we sit down to eat our next meal.
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