Sale prices are favoring properties with reliable surface water access, while land reliant on groundwater continued to drop in value last year. The trends reflect buyer concerns over the implementation of the Sustainable Groundwater Management Act (SGMA) that begins next year. For economists, the numbers are surprising, since the state has yet to enforce SGMA and laws over groundwater rights and water trading are years away from being determined.

The sales price trends are part of an annual report released recently by the California Chapter of the American Society of Farm Managers and Rural Appraisers (ASFMRA).

Land appraiser Janie Gatzman, who co-chaired the report committee, notes in the report summary that most ag land overall showed stable values in 2018. But she points to the central and southern San Joaquin Valley, where buyers are well aware of SGMA and “the water source uncertainties it poses to these areas.”

Gatzman found that sale prices for Fresno County farmland that was completely reliant on well water fell by a mean decrease of 20 percent over the past year. Neighboring land in eastern Fresno County with surface water, meanwhile, increased by a mean of eight percent. Madera County had a similar situation. Farmland with only well water dropped by 41 percent from a peak value in 2015. Districts in the valley with reliable water delivery have been seeing stable growth in land values.

By contrast, the Napa Valley has seen steady upward growth in sales prices. Sonoma County premium vineyard values increased by 17 percent over the prior year. These vineyards were selling for around $140,000 per acre, with one well-established outlier selling at $310,000 per acre. Central Valley vineyards, however, have seen a steady decline, with the Lodi area experiencing a 14 percent drop in from its peak value in 2017.

Along the Central Coast, the Paso Robles Groundwater Basin is experiencing unprecedented issues as well. The local water district recently began restricting new wells for vineyard plantings. Sale prices for vested land, which had existing well water rights, increased by 17 percent over the prior year, while other sale prices fell to just 40 percent of the average vested land value.

Daniel Sumner, an agricultural economics professor at the University of California, Davis, cautions that these land values cannot accurately reflect the actual value groundwater access would have for a property.

“You can't sell something unless you can measure it and you know who owns it,” he said. “The groundwater situation is risky, because land buyers really do not know what the SGMA policy will bring.”

Some farmers may not be allowed to pump at all in dry years, he added. Other landowners may fallow their land in order to store groundwater and sell it at exorbitant rates during dry years.

State agencies are just beginning to explore ideas for potential water trading markets. Last month, Governor Gavin Newsom tasked the Department of Food and Agriculture, the Natural Resources Agency and the California Environmental Protection Agency with developing a “water resistance portfolio” that would potentially address water trading under SGMA along many other climate-related water challenges across the state.

The Public Policy Institute of California (PPIC) has also shown the need for water trading rules. It released a report in February pointing to the need for a portfolio approach toward relieving the water issues in the San Joaquin Valley and minimizing the amount of farmland to be fallowed under SGMA. During a presentation on that report, Ellen Hanak, director of the PPIC Water Policy Center, said water trading among farmers would reduce losses by nearly half.

Secretary Karen Ross of the Department of Food and Agriculture agreed:

“The sooner we can better identify the legal rights aspect,” she said, “will really help drive this and make our trading system much more robust.”

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