Since California began regulating groundwater in 2014, farmers have noticed a stream of outside investors—often hedge fund companies—buying up land to secure water rights in the San Joaquin Valley, and the state has taken little notice, until now.

With a deepening drought, state agencies are scrambling to account for every drop of water, both underground and on the surface, and to put a halt to the many illegal water diversions taking place. The federal government, meanwhile, is raising alarms that corporations run by foreign governments may be purchasing major U.S. food companies, and farmers fear those companies could undercut U.S. producers by controlling the water supply, circumventing shipping bottlenecks and monopolizing the food supply chain.

This led Sen. Melissa Hurtado of Sanger to draft a measure for protecting California farmland from foreign ownership.

“Our rural small farmers simply can't compete with the power of foreign investors for that scarce resource of water,” said John Werner, who owns a 57-acre farm in Tulare County and testified in support of Hurtado’s Senate Bill 1084.

Werner argued that well-funded companies are circumventing the Sustainable Groundwater Management Act by purchasing large swaths of land to procure more access to groundwater resources and using their capitol to develop pump stations and other infrastructure to move water to other properties.

He also claimed that foreign-owned businesses are benefiting from the global supply chain crisis by skirting import restrictions that would otherwise stall U.S. agricultural products.

Melissa Hurtado squareSen. Melissa Hurtado, D-Sanger

“When a California grower struggles to get their produce imported to a given country, a farming entity of that country can more easily import their California-grown produce into their own country because they make the rules there,” said Werner.

Foreign food processing companies are already seeking to vertically integrate their investments in the U.S., allowing them to control the food supply chain from field to processing, he added. The Hong Kong-based W.H. Group, for example, owns Smithfield Foods, the world’s largest pork processor, which accrues more than $27 billion in annual revenue. JBS, another major U.S. meatpacker, is based in Brazil.

Congressmembers have been concerned about the issue as well. Republican lawmakers last year inserted a provision within a USDA funding bill that would bar businesses owned by the Chinese government from buying U.S. farmland and participating in USDA programs.

An Agri-Pulse investigation into data collected under the Agricultural Foreign Investment Disclosure Act shows Chinese investors held a little more than half of 1% of the overall 35.8 million acres of U.S. farmland and forest land under foreign ownership in 2019. Foreign-owned land accounts for about 2.7% of all U.S. farmland and forest land, which, according to the Department of Agriculture, is about 897 million acres.

All 50 states report foreign ownership in U.S. private agricultural land, according to the Congressional Research Service. In 2019, states with the highest number of foreign-owned acres were Texas (4.4 million acres), Maine (3.3 million acres), Alabama (1.8 million acres), and Washington and Colorado (1.5 million acres each). Other states with more than 1 million foreign-owned acres were Arkansas, California, Florida, Georgia, Louisiana, Michigan, New Mexico, Oklahoma, and Oregon.

California’s portion of foreign-owned agricultural land is about the same as the national average, according to a report by the California Research Bureau. The number has steadily increased but remains minimal compared to Maine, with 19.5%, and Hawaii, with 9.2%.

“This bill is intended to stop that trend before it reaches a point where it could potentially undermine the state’s food security,” according to an analysis of SB 1084 by the Senate Agriculture Committee.

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According to Hurtado, foreign owners hold more than 150,000 acres of agricultural land, purchasing more than 40,000 acres in just one year spanning 2019-20. She pointed out that the risks of outside influence have been growing, as the war in Ukraine has triggered a global food security crisis and California—by far the nation’s largest agricultural economy—exports nearly half of its production.

Hurtado is following the lead of states like Hawaii, Iowa, Minnesota and Mississippi in seeking to add restrictions on foreign ownership of agricultural land.

“California is one of the only states that actually has a huge agricultural output that does not have any law of the sort,” she said.

SB 1084 specifically targets any new purchases of agricultural land from foreign governments and would charge CDFA with documenting the extent of foreign ownership.

CDFA, however, has raised concerns that collecting such information on water rights, water desalinization, energy production and agricultural land would be outside of its purview and the department would likely need to hire an outside consultant, incurring annual costs ranging into several hundreds of thousands of dollars. This could pose an obstacle for the bill, since it currently resides in the Senate Appropriations Committee awaiting a critical decision on Thursday.

Yet the measure gained broad support in the Agriculture Committee and garnered no opposition, though it did raise concerns with committee chair Andreas Borgeas, who holds a doctorate degree in international affairs with a focus on China. Borgeas advised Hurtado to follow President Joe Biden’s lead, with his April executive order that imposed new sanctions on state-owned enterprises, and build on the existing intelligence gathering process at the federal level.

“[SB 1084] is a prohibition. This is a very serious step,” said Borgeas. “Federal authorities, by and large, have registration requirements, disclosure requirements.”

Adding to that data collection, the U.S. Treasury Department will soon require companies to conform to the Corporate Transparency Act, passed in early 2021. The new reporting requirements for small companies will help to build a federal database of foreign-owned or -operated entities and may shed light on shell companies owned by foreign governments.

Despite the concerns over aligning the measure with federal standards, Asm. Steve Glazer of Orinda applauded Hurtado’s effort for taking important steps to account for the foreign influence on land and water in the state.

“U.S. security interests may be at risk,” said Glazer. “This bill creates an important pause in foreign ownership while that information is compiled.”

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