California is considered the food basket for the US as more than a third of the country’s vegetables and two-thirds of its fruits and nuts are grown in the state. With respect to certain specialty crops, such as tree nuts and specific fruit varieties, the state is also a leading global supplier.
The position has primarily been due to a great combination of agroclimatic conditions (Mediterranean weather) and the strong intent of first-generation farmers to provide an alternative to the import of various crops.
Specifically, regarding almonds, the US produces nearly 80 percent of the global crop and, despite a threefold increase in production from 800 million pounds to 2.5 billion pounds, thanks to growing demand due to a widening of markets and applications – in no small measure driven by the marketing efforts of Almonds of California (ABC) – prices have also doubled, making it a valuable crop from an export perspective.
The market value of the almond crop in the US is approximately $6bn, according to the latest estimates from ABC and USDA. The all-round impact of this growth has been reflected in increased farmland values and diversion of cropland to grow almonds. Per ASFMRA (leading association of farm appraisers), bare land for growing almonds has witnessed nearly four-to-fivefold increase in prices over the past two decades.
However, the success that has led to an aggressive expansion of the crop, alongside strong climate change impacts, has resulted in a perfect storm that not only poses questions for almond growers but for the entire agricultural industry in California.
Driven by repeated bouts of severe drought and significant erosion of water table levels, the state has implemented the Sustainable Groundwater Management Act, more commonly known as SGMA, to regulate water consumption and to overcome the challenge of self-regulation. Almonds are a leading source of water consumption and due to its rapid expansion, the crop finds itself precariously placed given the likely restrictions on water usage.
Latest estimates from studies conducted by academic institutions indicate that nearly a million acres of farmland in the Fresno region (south central California) would need to become fallow over the next few decades. Given the amount of institutional capital invested in the region for growing almonds, and other tree crops such as citrus, the prognosis does not look promising.
As demand for the crop is unlikely to wane and the inability of other locations to step in and commence production at scale (there are talks of reviving the crop in Spain and Portugal), California growers must come up with a novel approach to overcome the challenges and secure their dominance in the global production of almonds.
To their credit, all the stakeholders have stepped up their game in a variety of ways. Improvements in technology to aid in optimum use of water and mechanization of harvesting to reduce adverse environmental footprint are some of the visible initiatives. However, more needs to be done.
The industry participants will possibly need to move to neighboring states such as Idaho where initial trials since 2014 (it takes seven years for an almond tree to start producing crop at peak yields) started indicating positive results earlier this year. In parallel, increased emphasis on regenerative farming techniques (organic for one) should reduce the burden on California agriculture.
There is a lot at stake here and there needs to be a concerted and cooperative effort among all stakeholders to secure desirable outcomes, such as improved water tables and limited impact of investor assets. Investing in tree crops in California has been a great way for pension funds to secure predictable cash yields and reasonable capital appreciation. It would be a shame to lose this opportunity given its positive impact on retired people’s livelihood.