SGMA Impacts on California Agriculture, Farming and Lending

Understanding water risk in the time of SGMA is a crucial element of success as a lender, investor, or grower. The world’s changing climate creates a new water environment which, in turn, creates pressing issues. The earth’s water resources are painfully finite and growers and agricultural investors are faced with intense competition and a ticking clock.  They are forced to make rapid decisions to claim their spot at the forefront.

What it boils down to is the ability to make educated decisions about portfolios in regard to water risk; a portfolio that was created with a lack of relevant water data is a recipe for blind decisions. Blind decisions harm the positions of lenders, investors, and growers, and only catalyze the issue of water scarcity.

SGMA and GSPs

Questions on how water factors into agricultural lending decisions are bubbling to the top as water scarcity takes center stage in the agricultural economy. Increasing uncertainty in the near future is the Sustainable Groundwater Management Act (SGMA). The uncertainty lies in the fact that regulation on this scale is untested in California, and the Groundwater Sustainability Plans (GSPs) are just beginning to unfold. The groundwater management paradigm shift that SGMA represents means understanding that both surface and groundwater are essential to ensure water security in your portfolio.

Uncertain water security leads financial institutions to limit lending to growers due to limited or missing water data. That potentially leaves money on the table in one transaction only to watch money burn in another transaction that proved riskier than expected. When a portfolio of investments sits in a higher water risk situation unknown to lending and financial institutions, that portfolio is at risk. If the risk is known, lender action can move assets and resources to a less risky area or work with the grower on mitigation strategies to lessen both the grower’s and the financial institution’s risk. The path to water security and sound management is data and knowledge.

Agricultural lenders and investors can mitigate risk by reducing uncertainties through understanding water risk on a given parcel or over an entire portfolio. Possession of actionable water data to implement macro- and micro-level knowledge is key to intelligent decision making that unlocks investment to fuel agricultural growth and help ensure critical water supplies in arid states like California. Understanding SGMA and its implications is one way to better understand both statewide, macro-conditions while also applying a micro-view of local Groundwater Sustainability Agency (GSA) and conditions on a specific parcel of land.

The Groundwater Safety Blanket Has an SGMA-Sized Hole

For decades, surface water supplies and weather conditions in California followed a fluctuating but steady pattern. More recently, the snowpack in Sierra Nevada mountain range and general precipitation exhibit a boom and bust pattern. The one constant historically relied upon by agricultural operations and those financing them was groundwater as a supplemental supply.

Entire operations may have relied 100 percent on groundwater, a practice that was not considered a high-risk endeavor. As subsidence, extraction expense, and water quality issues reared their ugly heads, the state decided to take action on groundwater regulation through SGMA.

Forged by a coalition of lobbyists, community groups, businesses, environmental organizations, and farmers, SGMA rolled off the assembly line. Groundwater regulation is the way of the future. Dreams of unlimited pumping and ignoring the detrimental impacts are over. Change is never easy – unless you are prepared.

Understanding the Sustainable Yield

SGMA redefines groundwater management through the idea of a “sustainable yield,” which is the maximum amount of groundwater that may be withdrawn from a basin without causing an “undesirable result.”

There are six undesirable results:

• Chronic lowering of groundwater levels.
• Significant and unreasonable reductions in groundwater storage.
• Significant and unreasonable seawater intrusion.
• Significant and unreasonable degradation of water quality.
• Significant and unreasonable land subsidence.
• Surface water depletions that have significant and unreasonable adverse impacts on beneficial uses.

There is a gray area in defining the sustainable yield for each groundwater basin. What is chronic, significant, or reasonable will mainly be up to the GSAs. The GSPs will reveal how the GSAs handle sustainable yield. Even the most recent GSPs released for critically overdrafted basins will demand adjustment to the sustainable yields over the next few years, requiring stakeholders to track potential changes to that number. Below is an example of a method for organizing GSA data that AQUAOSO Technologies implements:

AQUAOSO does the heavy lifting of tracking and organizing data to save organizations time. GSAs are required to submit annual reports to the Department of Water Resources to update the data provided in the GSP. Once you commit to tracking key metrics related to SGMA and the GSPs, you can better understand how decisions made at the state level will impact the water security of parcels in your portfolio.

Preparation is Key

SGMA required GSPs in place for critically overdrafted groundwater basins by January 31, 2020. Currently, GSAs inside of critically overdrafted basins are working on actual implementations, while the rest of the GSAs are working with stakeholders through public outreach. Despite a lack of clarity on how each GSA will achieve sustainable yields, understanding the availability of surface water supplies, the ability to transfer water to a property, and whether the soil conditions lend themselves to prime groundwater storage can combat the unknowns surrounding groundwater pumping.

Bottom Line

Bottom line: the players in the agricultural economy need accurate, relevant water data to prepare them for the change that needs to happen and to guide them through the pitfalls of water scarcity toward a responsible future.

The AQUAOSO Water Security Platform was built with SGMA in mind.

You can research and map by parcel or portfolio of parcels and get a clear picture of your water risk. Be prepared.

Start by utilizing our free water map. Learn can also about the regions we serve beyond California and take action with your new-found knowledge by forming the plans and partnerships needed. You can get ahead of SGMA and we can help. Get a demo or talk to a water expert today!