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Experts: SGMA begins to affect land values

Todd Fitchette Agricultural well drilling
Rural appraisers say farmland sales are just starting to be affected by the California Sustainable Groundwater Management Act, which has its first big deadline in 2020.
Looming deadlines apparently caught some land buyers by surprise.

By now one would suspect that the California Sustainable Groundwater Management Act (SGMA) is “old news,” something that is firmly ensconced in the minds of farmers and real estate investors as the first of several deadlines loom.

Nevertheless, I understand from rural appraisers attending the recent Outlook Conference – the annual meeting of the California chapter of the American Society of Farm Managers and Rural Appraisers – that SGMA was apparently not on the minds of everyone considering a farm real estate transaction last year.

Each year the California chapter publishes its Trends Report, a synopsis of farm real estate values in California and Nevada. The figures are based on actual sales and value trends that are likely conversation starters among ag lenders, investors and the white pickup brigade at the local diner.

I spoke with Janie Gatzman, who co-chairs the annual Trends Report with Tiffany Holmes, for our story on the change in farm real estate prices across the state. Gatzman told me that numbers revealed little in the way of “big news,” in the sector as values were predictably varied, depending on crop and location. That could be good news in that buyers, sellers and the markets weren’t overreacting or involved in the kind of “irrational exuberance” a former Federal Reserve chairman once accused of the U.S. stock markets.

Notable in their report and presentation made at the Outlook Conference was some discussion on SGMA and the apparent lack of concern that California will soon limit groundwater available for farming.

Interspersed in their slide presentation of charts and figures were comical yet poignant references to SGMA as appraisers drew upon examples of medieval sailing maps that warned sailors of dangerous and uncharted territories with drawings of dragons and sea monsters. Perhaps current-day California water maps could illustrate unregulated regions known as “white areas” with similar graphical representations.

Gatzman says the white areas of the San Joaquin Valley are beginning to see reduced land values that will likely get worse as their sole source of irrigation water comes from challenged aquifers. In other areas, appraisers say attempts to draw SGMA into discussions seem to be shushed by the response: “not now, we’re busy planting.” One could surely draw this conclusion from the proliferation of almond orchards as there still seems no slowing in that sector.

As SGMA reduces the availability of land to farm and prime locations already planted in valuable crops remain off the market it’s likely we’ll see a growing chasm in land values. Some farmers with land in regions flush with surface water know the gold mines they’re sitting on, while at the other extreme, farmers in the white areas and areas with declining groundwater resources should by now be planning an exit strategy before the proverbial light at the end of the tunnel becomes a train wreck they can’t avoid.

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