The value of farmland in parts of the San Joaquin Valley, California’s agricultural heartland, has fallen rapidly this year as commodity prices lag and implementation of the state’s Sustainable Groundwater Management Act casts a shadow on the future of farming in the region.
In 2014, when SGMA was adopted, the value of farmland without reliable surface water access began to decline. But within the past several months, those values have plummeted, according to appraisers, realtors and county assessors.
“It’s very dramatic,” said Janie Gatzman, owner of Gatzman Appraisal in Stanislaus County, who until last month served as president of the California chapter of the American Society of Farm Managers and Rural Appraisers.
Last month, Gatzman presented data based on hundreds of real estate transactions to congressional staff. Her analysis showed San Joaquin Valley vineyards and nut tree orchards had declined in value by 25% to 50% within the previous eight months.
Since March, almond orchards without reliable surface water in the valley have lost more than half their value, according to ASFMRA’s figures. In parts of Tulare County, Gatzman said, some pistachio orchards have sold this year for a quarter of what they were worth last year.
Others who value farmland in the San Joaquin Valley reported similar trends. In Madera County, the value of more than 500 agricultural properties has fallen below their purchase value within the past two years, said Brian Glover, deputy assessor for the county, a scale of decline he had never seen in two decades assessing properties for the county.
Low crop prices, rising input costs and high interest rates have played a big role in the decline of farmland values, experts said. But appraisers said those cyclical factors do not explain the freefall in land values seen this year in parts of the valley.
“We continue to see this divergence between the values of properties that have multiple sources of water and properties that are reliant on wells only,” Gatzman said. “That is SGMA’s influence.”
The sharp drop in land values this year—a decade after SGMA was adopted—came as implementation of the law ramped up. This year, state regulators intervened for the first time. They placed two of the valley’s subbasins on probation, taking over control from the local agencies charged with implementing the law to enforce stricter measures to curb groundwater pumping.
The probation hearings in Sacramento set a new tone for SGMA enforcement and “added a whole next-level amount of risk” to purchasing farmland in affected areas, said Michael Ming, owner of Alliance Appraisal in Kern County and president of the California chapter of ASFMRA.
Initially, when the law was adopted, “we knew something was going on, but we didn’t know in advance what it might look like in each subbasin,” Gatzman said. “Everybody understands completely now that water is being restricted in these areas.”
Behind the decline in land values, appraisers said, is a growing awareness that SGMA is leaving certain properties with limited farming capacity. It will be especially difficult in some places to produce the fruits and nuts that blanket much of the San Joaquin Valley and account for most of its $36 billion in yearly farm revenue.
Groundwater has supplied about 40% of water used in California in typical years and as much as 60% in drought years, serving as a lifeline for orchards and vineyards that need water year in and year out.
“Pumping is the buffer stock for fluctuations in the surface supply,” said Richard Howitt, professor emeritus of agricultural and resource economics at the University of California, Davis. “That is what enables you to have perennial crops.”
But experts said—and farmers agreed—overdrafting aquifers was not sustainable. It shrank underground water storage, caused swaths of land to sink, damaging infrastructure, and dried up shallow wells.
Stephanie Anagnoson, Madera County director of water and natural resources and manager of the county’s groundwater agency, receives an email every time a household reports its well has gone dry. The emails arrive nearly every other day.
The pumping reductions required to stabilize aquifers could result in as much as 20% of the San Joaquin Valley’s 4.5 million acres of irrigated farmland coming out of production, according to an analysis by the Public Policy Institute of California.
Under SGMA, critically overdrafted groundwater basins such as those in the valley have until 2040 to achieve sustainability. But since 2020, when groundwater agencies submitted their sustainability plans, they have also been required to avoid outcomes such as unreasonable further depletion, subsidence and water quality degradation.
“The law doesn’t say you have to end overdraft overnight,” said Ellen Hanak, water policy expert at PPIC. “You can get there gradually, over the 20 years, with one important proviso, which is you are not supposed to cause ‘undesirable results’ along the way. That issue can end up making it necessary to cut back on pumping faster in some places.”
And it has. Within the first years of implementation, farmers have faced pumping restrictions they say threaten the viability of their farms.
In Madera County, some farmers in “white areas” that do not receive surface water from an irrigation district must pay penalties this year on any water they pump that exceeds 27.4 inches. But almonds, the county’s No. 1 crop, need 40 to 50 inches of water per year.
Amrik Singh Basra, who farms 300 acres of almonds in a white area in the county, said he has minimized pumping to keep his trees producing without incurring too costly a penalty. But he is still paying a price, both in penalties and production.
“When we look at the trees,” Basra said, “we can see they are not getting enough water.”
He has lost yield, with some of the crop turning out flat and shriveled, and his land’s reduced farming capacity has caused it to lose more than half its value.
“How quickly it’s come on in recent years has been a surprise,” said Doug Phillips, president of Schuil Ag Real Estate in Tulare County, referring to SGMA’s impact on land values. “I don’t think much changed initially, but it certainly has changed now.”
The value declines have been greatest, appraisers said, in white areas that depend entirely on groundwater, which comprise about 20% of the valley’s irrigated farmland, and in districts with expensive and unreliable water deliveries.
“There is just no appetite for those properties unless you discount it so steeply,” Gatzman said. “That’s why the value has fallen.”
The loss of farmers’ land equity has implications for the agricultural finance sector that are compounding the challenges farmers face.
Many growers rely on yearly lines of credit to cover the cost of labor, water, fuel, fertilizer, pesticides and other inputs needed to farm their crop.
“Generally, small-scale growers don’t have finances to cover all the expenses up front, so they ask for operational loans from the bank,” said Arshdeep Singh, who grows lemons and mandarins in Fresno County and serves as director of the Punjabi American Growers Group, representing 400 farmers in California. “When I sell my crop, I pay that loan back.”
The crop typically serves as collateral for the loan. But when commodity prices are down—as they have been this year, with many almond and winegrape growers operating at a loss—banks use land equity as collateral for the loans, allowing growers to continue farming through inevitable downturns.
Jill Jelacich, American AgCredit’s head of banking for the Central Valley, said that when crop prices are down and land equity is reduced, lenders may not be able to extend credit to farmers.
“If a loan is no longer performing and the collateral value is insufficient, lenders are exposed to losses,” Jelacich said. “Further, with fallowing acreage, repayment capacity of a borrower may decline.”
The drop in land values has cost some banks. Those that made long-term mortgage or land development loans in white areas have become overextended on properties suddenly worth less than the amount of unpaid debt.
“There are alarms going off everywhere,” said Stephen Kritscher, an independent loan broker in Yolo County who consults for agricultural lenders and borrowers across the state. “When those things start happening, lenders get really cautious about where they put their money.”
Numerous banks declined to say whether they were approving fewer operating loans this year in the San Joaquin Valley. Farmers and lending consultants said they appeared to be—at least in areas facing water constraints.
“Lenders are very concerned, and most of them are pulling back from business that they would have done a year or two years ago,” Kritscher said. “If your water is short, you’re going to have serious challenges getting any kind of financing.”
Justin Morehead, a former banking manager whose family farms in Tulare County, spoke last month at the state probation hearing for the Tule Subbasin, spelling out the crisis facing some farmers.
“The banks, now looking at appraised land values that have shed 60% to 70% in five years, are reluctant to lend to the local family farm. Unable to continue farming, the owner will either be forced to sell or foreclose with the bank,” Morehead said. “This is not a hypothetical exercise to us. This is the reality our family is facing.”
Michael Naito, former president of the Madera County Farm Bureau who farms in the county, said he is seeing an increasing number of orchards either abandoned or pushed over and piled up without being replaced by a new crop.
“Everyone’s equity base has decreased, and it’s costing a lot more to farm,” he said. “There comes a point where you can’t do it anymore.”
Appraisers, brokers and realtors said that in selling farm properties, they have worked this year with more people than ever before from banks’ special assets departments, which manage distressed properties such as those facing bankruptcy or foreclosure or being sold as a last resort to pay off debt.
The number of such properties, which often sell at a discount, being sold this year in the San Joaquin Valley has driven down the entire market for farmland as all sellers are forced to compete with the discounted prices.
“It’s definitely adjusting values” for the whole region, said Phillips, the Schuil Ag Real Estate president.
Gatzman, who grows almonds in addition to running her appraisal business, said she is afraid of what the spiraling effect of poor commodity prices, declining land values and a wary banking sector could mean for farmers.
In August, Gatzman presented recent land value trends to leaders at the California Department of Food and Agriculture. Last month, she traveled with other ASFMRA leaders to Washington, D.C., where she met with Rep. Glenn Thompson, R-Pa., who chairs the House Committee on Agriculture, and with staff members of Rep. Tom McClintock, R-Calif., and Sen. Alex Padilla, D-Calif.
“As appraisers, we’re the canaries in the coal mine when it comes to land values,” Gatzman said. “We’re trying to get the word out that this is a huge issue.”
— Courtesy of the California Farm Bureau.
