Why SGMA makes groundwater reductions inevitable

New Current Land & Water principal David Orth says his firm sponsored EDF's latest report to advance a land repurposing dialogue that avoids the negative associations of ‘fallowing’.

Compliance with California’s Sustainable Groundwater Management Act will require reduced groundwater pumping, the Environmental Defense Fund said in a March report.

The report Advancing Strategic Land Repurposing and Groundwater Sustainability in California – summarizes stakeholder views regarding the role of land repurposing in SGMA compliance in California’s San Joaquin Valley, the location of many of the 500,000 to 1 million acres expected to be taken out of production in coming decades due to water scarcity and regulation.

“While efforts to maximize water and demand management alternatives, such as groundwater recharge and well-designed water trading programs, are important and hold the potential to support socioeconomic values, it will also be necessary to reduce groundwater pumping to meet SGMA goals,” the report’s authors wrote.

“Reduced pumping, especially in areas facing chronic surface and groundwater supply deficits, will result in significant reduction in the irrigated agricultural footprint. If this transition is not managed strategically and proactively, it could have devastating impacts on the health and economic wellbeing of the San Joaquin Valley’s communities.”

EDF’s group included representatives of the California Farm Bureau, specific Groundwater Sustainability Agencies (GSAs) and Hancock Farmland Services Group, among others.

Among the initiative’s sponsors was Fresno, California-headquartered New Current Water & Land, which provides consulting services for the assessment, development, management, acquisition and banking of water supplies throughout California and the western US.

“The historical approach of ‘Is my well big enough to support the demand from my crop?’ no longer works under the SGMA equation,” New Current principal David Orth told Agri Investor.

We’re still seeing large institutional investors that are making major investments in property and crops that are going to be water-short over time

David Orth
New Current Land & Water 

“You need to understand how much groundwater you can pump today and how much groundwater you are going to be able to pump over time. In most of the situations in the Valley, it’s a declining balance.”

Orth said the report is part of an effort to advance dialogue about how to approach inevitable changes to California’s agriculture, which has historically relied on groundwater. Despite widespread attention to water, he said, the productivity and resilient values of California farmland help create an atmosphere where appraisals still assume water risks can be managed with existing wells or future litigation.

“We’re still seeing large institutional investors that are making major investments in property and crops that are going to be water-short over time,” he said. “People are just not seeing the reality that is in front of them.”

Sustainability plans

SGMA passed in 2014 and required 21 basins facing potentially critical water shortages to submit by January 2020 their Groundwater Sustainability Plans (GSPs) describing strategies for ensuring sustainable water supply through 2040. Those plans are under review and will be joined by hundreds more submitted by other basins that are to be filed by January 2022.

Orth said most of the agencies that have traditionally adjudicated water issues in the western US opted to become GSAs, which vary widely in their levels of sophistication and development.

Although farmland investors had relatively minimal involvement in the development of GSPs, he said, most GSAs have mechanisms for gathering input from local irrigators. Orth said he encourages clients to participate in such forums whenever possible to inform the design and implementation of local efforts to comply with SGMA.

“We’re seeing more and more interest from the investor community and some of the large ag entities – which are clearly investor-backed – to have people on boards,” he added.

Most GSAs have told agricultural water users they can expect gradual declines in water allocations through 2040, according to Orth, who explained that New Current works with its clients to understand implications of specific alternative land use strategies and ramp-down schedules on their portfolios.

Most GSPs, he said, reference future creation of groundwater trading markets to mitigate reductions, but so far details are limited. Though some opaque trading is already taking place within some GSAs, California law typically limits transfer of water out of critically over-drafted basins.

“Most of the GSAs adopted plans that said: ‘We’re going to figure out how to deal with this on the supply side. We’ll just create more water.’ Which, we all kind of laughed at, because there’s not that much water to create,” he said.

There are potentially profitable opportunities in efforts to avoid the ‘checkerboard’ approach to farmland fallowing that is starting to emerge, New Current senior associate Stacie Ann Silva told Agri Investor.

Thus far, institutional investors have largely focused on groundwater recharge projects and strengthening infrastructure to supply specific properties, Silva said. Some, she added, have planned to set aside as much as 10 percent of any future land developments to hedge against water risk.

“That is something that institutional investors have engaged in to help balance their individual portfolios that I think potentially could tie nicely into land repurposing if there is a way to decide more strategically – if you have larger land holdings – which portions lay fallow,” Silva said. “Those portions would hopefully be the ones with some other benefit – whether that be a habitat benefit, a solar benefit – or other use.”

Orth added that too often, farmland fallowing discussions begin with a focus on least profitable acres, rather than those whose selection would be more strategic. Despite strong local aversion to taking land out of agricultural production, he said, SGMA will require it.

“Land retirement has to happen,” he said. “Let’s not make this a ‘retirement’ or a ‘fallowing’ conversation; let’s make this a ‘repurposing’ conversion and find other ways to manage that property so that it creates benefit and value to the landowner and to the region.”