California Agricultural Water Prices by Water District
Water prices play a key role in determining a farming operation’s long-term viability. If prices are too high, then it may no longer make economic sense to grow water-intensive crops.
When prices are too low, water transfers are less valuable on the open market. Before making any decisions about agricultural investments, ag professionals should take California agricultural water prices into account to make informed decisions.
This article will explore current California water district rates by acre-foot, with a handy map making it easy to compare rates across water districts. Ag professionals can use this map and other cloud-based GIS tools to streamline the research process.
Current California Agricultural Water Prices Map
Water prices can vary widely and spike during times of water scarcity. Currently, water district prices are still below $200 per acre-foot in most regions, although some areas have passed the $500 mark.
The southern end of the Central Valley has the highest prices, between $200 – $500, while water rates in the northern part of the state are below $50 per acre-foot and under $1.00 per acre-foot in some districts:
Water district rates aren’t the only prices to consider, since many regions of California also support water transfers on the open market. During the most recent drought that lasted from 2012-2016, California water sales reached $800 million per year vs. $300 million in an average year. According to the Water Market Insider, some farmers paid prices of $2,200 per acre-foot to water high-value crops.
Another useful metric is the Nasdaq Veles California Water Index, which jumped 30% in early 2021, from $530 per acre-foot to $686 per acre-foot. While this represents water futures and not physical water sales, it can be a good indicator of what’s to come.
Why Water Prices Matter To Ag Lenders
With up to 90% of consumptive water use in California related to farming, the cost of doing business in agriculture can’t be separated from the cost of water – and the size and location of a farm play a key role in how much a grower can expect to spend on water costs.
As the Berkeley News notes, an urban farm is likely to pay much higher water costs than a commercial grower:
“Those operating in the Central Valley have access to highly subsidized state and federal water sources, which translates to cheaper food costs…. The Central California Irrigation District, with access to Bureau of Reclamation Water, charged farmers $15 per acre-foot for the first 3 acre-feet of water they used.”
But even these low rates are of little use when the water runs out. In times of drought, growers may have no choice but to turn to private water markets or let fields go fallow.
By analyzing water price information on a continuous basis, ag lenders can know in advance whether their borrowers will be able to afford the cost of water.
Lenders and investors can determine how water prices factor into borrower spend and can calculate overall expenses based on the water needs of specific crops.
Water Prices and Water Risk Assessments
California agricultural water prices are also a key data point to include when performing due diligence as part of a water risk assessment. As regulators and investors expect ag finance institutions to disclose climate-related ESG risks, it will be more important than ever to have an accurate understanding of water costs.
It can also be helpful to keep a record of each year’s prices and monitor them as they fluctuate. Lenders and investors can compare these trends with parcel-specific data, historical drought patterns, and other variables to get a more complete picture of water risk and its effect on an agricultural lending portfolio.
Lenders can also work with borrowers to mitigate any risks that arise during the due diligence process. As prices rise, it won’t be enough for growers to have access to a single water source. Growers with multiple water sources to choose from – such as surface water rights, groundwater allocations, and water transfers – will be better prepared to withstand long-term droughts and variable water prices.
Note that if water transfers are from another county or region, then they may not come in time due to transfer regulations. It is wise to understand the geographic, district, and county logistics of a borrower’s water transfers. GIS technology can be an invaluable asset in this.
Using Data-Driven Intelligence to Track Water Prices
While looking at average water prices in each district can be useful, it’s important to put that information into the context of a lending portfolio. Not only can prices vary from one basin to another, but a farm with fewer appropriative water rights may end up paying more than a farm with access to sufficient water sources.
Farms at higher risk of water stress can apply drought mitigation methods such as more efficient irrigation systems, water storage infrastructure, or regenerative agriculture. Growers who don’t take water costs into account may have no choice but to pay more for water transfers.
Ag professionals can use portfolio-specific, data-driven intelligence to monitor costs on a parcel-by-parcel basis and factor it into their lending decisions. By using cloud-based GIS decision support technology to collect and analyze data, ag lenders and investors can build their own custom maps and reports to share with borrowers and other stakeholders.
With better data, lenders and borrowers can work together to reduce water risk across the agricultural sector, contributing to a more resilient agricultural economy.
The Bottom Line
California agricultural water prices can be as low as $1.00 per acre-foot in some areas but can reach $500-1000 and more in times of water stress. By monitoring water district rates, as well as spot water prices and water futures, lenders and investors can gain a better understanding of what borrowers can expect to pay to maintain their crops. This makes for better lending decisions and more sustainable investments.
Contact the team at AQUAOSO to ask questions or chat about water risk, or download one of our free resources to learn more about water cost trends in California.
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