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Serving: West

Investors, lenders have tools to measure water risk

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As water scarcity becomes more common in the West, agricultural lenders and investors can avail themselves of information to better understand their risks associated with irrigation water availability.
California-based Aquaoso is positioned to help them better understand the financial risks associated with water availability.

The tools available to agricultural lenders and investors in five Western states will soon be available in Arizona as the company that provides valuable data into irrigation risk expands.

As water scarcity in the West ebbs and flows with what some are saying will be an increased occurrence of weather extremes in the West – times of severe drought followed by periods of excessive moisture –California-based Aquaoso is positioned to help lenders and investors better understand the financial risks associated with water availability.

"We used to be able to look at a piece of property and ask, 'does it have two sources of water'," said Cameron Burford, co-founder, and product manager for Aquaoso. "Asking if the property has two sources of water is no longer enough because allocations are in flux and groundwater restrictions are growing."

That simplified question is still be relevant, but in a nuanced manner as climate change, coupled with regulatory restrictions that limit groundwater pumping and surface water availability combine to make water scarce.

Chris Peacock, chief executive officer and founder of Aquaoso, learned through more than two decades of consulting and engineering work in the water world that lenders needed more information as they sought to manage their financial positions when lending on farm properties. Water availability could no longer be answered with a simple checkbox on a form, not with laws like the California Sustainable Groundwater Management Act (SGMA), and certainly not as multi-year drought conditions become more common.

In 2018 his company unveiled tools to give agricultural lenders, investors, and growers a clear understanding of water risks on a per-parcel basis. It wasn't that the data to make these decisions wasn't available: the trick was finding and understanding it.

"Water risk is business risk," said Alex Parrillo, head of sales for Aquaoso. In the past, the data, systems, and tools lenders needed to identify, understand, monitor, and mitigate water risk were highly fragmented and held by hard-to-understand consultants, he continued.

About 80 percent of Aquaoso's clients are banks. Agricultural investors are also keenly interested in the information, Peacock said.

Buyers and their lenders are now asking questions about water quality, which along with climate and soil conditions drives what a grower can plant. Water cost is a third component of what the company provides as it compiles data and provides it in a useful manner for clients.

Trends

Understanding the trends driving public policy and business decisions is key to any due diligence, according to Cameron Burford, co-founder, and product manager with Aquaoso. Moreover, as the groundwater management plans required under SGMA are approved by state regulators, knowing how much groundwater will be available on a sustainable basis will be a common question rural appraisers, lenders, investors and growers will ask.

California rural appraisers report a widening gap in land values because of perceived long term water availability as those areas with known challenges are starting to suffer financially as farmland values there stabilize and look to possibly decline. Conversely, areas with more consistent supplies of surface and groundwater have seen increased interest, as reflected in purchase prices and offers.

According to Parrillo, California's agricultural economy loses billions of dollars annually from water stress and scarcity. This is projected to balloon as an estimated 750,000 acres of California farmland comes out of production as SGMA is fully implemented. Pointing to just one of many examples across the state, Parrillo says the Kern groundwater subbasin near Bakersfield will likely need to reduce groundwater pumping by over two-million-acre feet annually to meet sustainability. That's the equivalent amount of water needed for nearly 600,000 acres of almonds.

Aquaoso currently serves clients in California, Oregon, Washington, Idaho, and Montana. They will soon be in Arizona and have plans to include the western half of the U.S. with useful data for ag lenders, investors, and others.

Clients will not only have information on water availability to use for business decisions, but its quality and the cost of delivery will also be provided.

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