Using California Drought GIS Data to Assess and Mitigate Portfolio Risk
California’s drought outlook in 2021 is one of the direst in the country, with experts describing the region’s “biggest decline in snowpack’s water content on record for the time span covering the first three weeks of April.” The California Department of Water Resources reduced allocations for agricultural water service contractors from 10% to 5%, following the USBR, which recently declared a delay in deliveries.
CA farmers are no strangers to drought, of course, with the most recent major drought lasting from 2012 to 2016. During that time, reports the U.S.D.A, farmers had to take drastic measures to maintain their livelihoods:
“Farmers fallowed 37% more summer acres and 154% more year-round acres in 2015 than they did in 2011…. Additionally, some farmers in the Sacramento Valley found it more profitable to trade their water than use it themselves.”
Although ag lenders, investors, and growers themselves can’t avoid the on-the-ground reality of drought, they can take steps to be proactive and mitigate the worst impacts of water shortages. This article will take a close look at how California drought GIS data can provide the insights that agricultural professionals need to mitigate drought risk.
Are California Ag Professionals Prepared for Another Drought?
The most recent year in which allocations were set at 5% was 2014 — just before the peak of the 2012-2016 drought. Financial markets are already responding to the news, with the Nasdaq Veles California Water Index (NQH2O) climbing 30%. That marks an increase from about $530 per acre-foot to $686 per acre-foot.
According to the Water Market Insider, “the last time the final SWP allocation was 5%, competition among buyers drove spot water prices to record highs,” with some buyers paying as much as $2,200 per acre-foot in order to save high-value crops.
The outlook isn’t all dire, though. The U.S.D.A points out that, “despite these stressors, farmers, on the whole, have done a remarkable job so far in adapting to the [2012-2016] drought. Recent data indicate that net farm income in 2014 was the second-highest in California’s history, and that farm employment also hit a record high.”
In large part, this is because the agricultural industry in California has taken a proactive approach to drought management, using more sustainable farming methods, along with California drought GIS data and analytics, to mitigate business risk.
With that in mind, here are some of the questions that CA agricultural professionals should be asking themselves to anticipate and mitigate water stress (a sample from the AQUAOSO drought whitepaper).
Is it clear where each property in a portfolio is getting its water?
All water sources aren’t equally risky. There are many factors that influence whether or not a water source is reliable, including weather patterns, the groundwater basin that it’s located in, and the seniority and type of water rights attached to it. A weakness in any of these categories can turn a parcel of land from productive farmland into a liability.
Ag lenders and investors must actively review their portfolios to determine if a specific farming operation is at risk. This entails understanding crop-specific water requirements, as well as which groundwater district a parcel of land is in, and whether it will be subject to pumping restrictions or other regulations that limit water use.
California water district GIS data can be a useful tool for assessing parcel-specific water risk.
How do local supplies look in light of SGMA?
Physical drought is just one aspect of water scarcity. One of the ways that states are responding to drought is by implementing new pumping restrictions and other measures to reduce and reallocate water use. The most wide-reaching of these is the Sustainable Groundwater Management Act of California (SGMA), which charges each basin with developing its own water management plan.
By this point, few farmers will be unfamiliar with its impact on pumping restrictions and reporting requirements, but the uneven nature of the rollout means it can be harder for ag banks to stay on top of its impacts and keep track of when, where, and how specific borrowers will be affected. Even districts that are only 80 miles apart may pursue very different strategies to maintain the health of their watersheds.
This is another area where having access to reliable data is key. SaaS GIS is a natural risk mitigation and reporting tool for ag lenders, especially when multiple groundwater districts and regional pumping restrictions are at play.
What are plans B, C, and Z?
In a time of climate change and water stress, having a single backup plan isn’t enough. Ag professionals would benefit from having a detailed drought resilience plan that’s based on granular water data. This makes it possible for stakeholders to protect against stranded assets, identify material risks, and prepare for multiple unique risk scenarios.
Without a reliable data source, stakeholders may simply not have enough information to make educated decisions about which strategies to pursue.
For more ag lending questions and insights into how to prepare for drought, download the AQUAOSO Drought whitepaper here.
How California Drought GIS Data Can Help Ag Lenders
Without the appropriate tools, ag lenders and investors can be forced to rely on expensive consultants or time-consuming research to gather the information they need to assess water risk.
With the right GIS tools, however, real-time, context-driven information can be accessible than it has ever been, giving agriculture lenders an advantage in preparing to mitigate drought risks.
GIS stands for geographic information system, and usually refers to map-based tools that present multiple layers of data in an easy-to-understand format. For example, a farmer might use GIS tools to track soil quality, evapotranspiration data, and runoff patterns in order to develop more efficient irrigation methods.
California drought GIS data assist ag lenders by aggregate data from multiple sources into a single place. A lender may want to view a map that shows the boundaries of water districts, along with well locations and groundwater depth. They can then zoom in to a specific parcel of land to discover more information about water rights and land ownership.
This makes it possible to develop a more holistic picture of water stress and monitor it over time from multiple perspectives and at multiple resolutions. An accurate big picture must come from the aggregation of granular data that shows the water risk context of specific portfolios.
Users can also share the data with other stakeholders to ensure that everyone is on the same page about water risk and acting on truthful, up-to-date information.
By working together, ag professionals can develop risk mitigation strategies that benefit everyone affected by water scarcity, including investors, growers, and the communities who depend on the food they produce.
The Bottom Line
Early 2021 brought some worrying signs in terms of California’s drought risk: snowpack was at 37% of average at the end of January, and water allocations in parts of the state are at a mere 5% of the amount requested. These signs are reminiscent of California’s 2012-2016 drought, and ag professionals need to start planning now to mitigate water risk.
The most effective risk mitigation strategies start with water data.
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