Whether it’s almonds, walnuts or pistachios: you can’t get past California in the supermarket. Almonds in particular are considered an important agricultural export product of the state. Between 70 and 80 percent of the harvest is enjoyed in other countries. But the nuts and stone fruits are not only high-yield, but also extremely expensive. Because for the cultivation you need a lot of water, which is already scarce in California. In view of the increasingly severe drought periods, the situation is getting worse.
As “Bloomberg” shows in a research, the fruit and nut boom is unbroken despite the drought and water shortage. Large investors would continue to make huge profits from permanent crops. To keep it that way, they would dig deeper and deeper into the ground to get water. The pumping power has contributed to the drop in groundwater levels in parts of the Central Valley and many of the population’s smaller wells no longer have sufficient water supplies, according to “Bloomberg”.
The country is sinking
The mysterious investors would come from New York, Toronto, Zurich and other financial metropolises. Investment banks, insurers and pension funds have exploited California’s groundwater for growing high-quality nuts, leaving surrounding communities with less drinking water, the US media describes in several documents. Since 2010, six major investors alone have quadrupled the agricultural land they manage in California, on which they grow different varieties.
While communities could only dream of deep wells, companies have poured vast amounts of money into costly water pumping projects over the past decade. For the already dry state, this means further drying up. “The history of groundwater is one of modest recharges during very wet periods, followed by much larger losses during subsequent droughts,” global water problems expert Jay Famiglietti told Bloomberg.
Weather extremes & climate crisis
Although individual extreme events cannot be directly traced back to a specific cause, according to the current report by the Intergovernmental Panel on Climate Change (IPCC), it is clear that extreme weather events such as floods, storms and heat are becoming more frequent and more intense as a result of the climate crisis. This means: Precipitation and storms are getting heavier, heat waves are getting hotter and droughts are getting drier.
In addition, there are the consequences of overpumping: If too much water is taken from the ground, the layers below the surface of the earth compact and the ground sinks. According to the US Institute Geological Survey, the Central Valley floor has been sinking several centimeters per year in recent years. This effect is amplified particularly during periods of drought, when excessive amounts of water are drawn from aquifers for agriculture or drinking water. In addition, the intensive pumping worsens the groundwater quality, it is said in another Study institutes.
“Invasion” of the new almond lovers
The lack of groundwater supply in California and the consequences of the climate crisis on life in the “sun state” have been reported quite frequently in recent years. In contrast, the role of external investors in the nut and fruit business received less attention, but the trend is rising. The US online magazine Motherjones reported on the “invasion” of large companies in 2015, before that there were isolated reports about the new almond lovers. Among them is the US financial services provider TIAA. Documents quote almonds as an “attractive long-term investment theme” with growth potential.
And then there’s Hancock Agricultural Investment Group, a subsidiary of giant Canadian insurance and financial services conglomerate Manulife Financial. In 2010, the Hancock Group explained to its customers that permanent crops offered attractive returns and a possible hedge against inflation. According to “Bloomberg”, millions have therefore been invested in the cultivation of nuts and fruits in recent years, including in water pumps.
Since early 2019, one in six of the deepest wells has been drilled on land owned or managed by outside investors. However, most California almond farmers are still local farmers. 90 percent of California’s 7,600 almond farms are family owned, according to the Almond Board of California. Responsible water use is promoted on the website.
Water is regulated – enough profit until 2040
In 2016, geologists from Stanford University found that there was significantly more groundwater in the drought-stricken state than was assumed – albeit deeper in the earth. In order to reach the water, the local communities already need the financial means of the big investors. According to Bloomberg, from 2014 to August 2022 they drilled dozens of holes that, at 300 meters, are twice as deep as an average state-funded well in the Central Valley.
With significantly larger pipes, they could pump three times as much water as municipalities. However, the company adheres to the Sustainable Groundwater Management Act passed in 2014, calmed the investors to “Bloomberg” and downplayed the pumping capacity. The California Groundwater Act, which regulates abstraction, is considered historic. However, the agricultural industry had negotiated a transitional period until 2040. By then, the local water authorities that control the withdrawals should have achieved the defined sustainability goals.
Many investors emphasized that they have already taken steps to minimize the consequences of the “drilling frenzy”. For example, more efficient irrigation systems have been installed. However, the fact that the extraction from the groundwater should be regulated more sustainably also caused some headaches. Hancock is said to have warned investors in 2014 that the plantations would run out of water if the sustainability plans were fully implemented.
In a presentation in February 2022, the financial service provider made its own managers aware of the consequences of the future water restrictions imposed by the law. If less was pumped, a significant decline in the company’s own plantations can be expected. But “strong current cash flows will help mitigate risk,” quoted Bloomberg from Hancock documents.