Wednesday, July 15, 2009

Delta Smelt or Delta Sharks?

Why Are California's West Side Farmers Getting Squeezed?

California is the nation's top agricultural exporter and home to nine of the top ten farming counties in the entire nation (1). Much of the San Joaquin Valley (roughly the area between Sacramento to Bakersfield) is devoted to farming operations. This region was once one of the largest in-land lakes, but it was extremely shallow and irrigation projects allowed the region to be settled and farmed.

Fast forward to 2009. The hot button issue with farmers is a decision to cut off irrigation to many west side farmers out of "respect" for a variety of fish called delta smelt. These are not native fish, but they thrive in one of the key reservoirs that delivers mountain water to west side farmers. When the irrigation gates are opened, the small fish tend to clog up the machinery of the gates - killing many fish and costing money for clean up.

To fix the problem, the state says it will need as much as $25M to install fish screened gates. I'm sure they could have picked a more ridiculous number out of their hat, but $25M seemed credible enough. In the meantime, water deliveries to thousands of farmers are simply cancelled - a move that will likely cost 60,000 jobs in the farming sector in this season alone.

Sounds horrible, doesn't it? It's almost enough to get one hating all environmentalists and moving even further to the right...

Unfortunately, this story has many strange bedfellows.

It's like déjà vu all over again

As the Los Angeles basin was developing beyond its means last century, developers sought to get further out into the basin where land was cheaper and rules were loose. The problem was finding sources of water to support new residential and commercial developments.

Some of the very successful developers worked out deals with water commissioners that inexplicably led to water supplies getting cut off to small, rural farmers. The resulting season brought that farmer bankruptcy - without water, he can't produce and earn money to pay his debts. And without water rights for the farm land, the dirt was nothing more than a worthless desert.

At this point, developers would head out to that poor farmer and offer him a 'generous' deal on his land - walk away for pennies on the dollar and we'll assume your debts. Once all of the farmers in an area were out of the way, water rights would be restored and a city would spring up. All of this was massively profitable for the developer.

To see this scenario in action, go watch the classic movie called "Chinatown" (Jack Nicholson).

How does this relate to Delta Smelt?
Today's "Delta Smelt" water crisis is just cover for a more straightforward scenario.

California has long planned to develop the west side of the central valley into one large series of "sleeper" towns for LA & the Bay Area. The coastal regions are heavily populated and working class folks have trouble living in the towns that they work in. The plan has been to develop a high speed transit system to shuttle workers from the valley and into the major metro centers of LA and the Bay Area. Voters approved the high speed rail system last November, 2008.

But there is one problem to this plan: Farmers currently own all of the land.

Farming is a profitable business and California farmers have a penchant for strong business acumen and highly efficient operations. Modern farmers in this area are also wise to land prices. When urban development approaches, they know it's time to cash out and they work to transition their land into "entitlement ready" parcels.

And that's where modern farmers run afoul with history. By being smart businessmen, they are cutting out middleman developers who seek to buy farmer land below value by any means possible and sell it to builders. The workload is light and risk is low, but for all of their near zero effort they expect to see 10-20 fold returns.

It looks to me like these modern day developers (sharks) appear to be turning to old dirty tactics and slight of hand.

By convincing a few bureaucrats to cut off the water supply, many farmers will go into default on their land. They'll be forced to sell in a hurry or lose everything in bankruptcy. Speculators will come in and buy the land cheap, hold it for a few years, and then develop it during the next housing boom cycle. Without this fire sale, few developers will work to rapidly buy up and build out the valley. And without irrational development on the scale that we saw from 2003-2007, the state will not be able to fully realize the goal of a giant 300 mile long suburb along the I-5 corridor.

How to solve a phony crises?
I urge you to look at history as your guide as to how this situation was engineered and how it will play out. You'll have a lot less success fighting the delta smelt than you will fighting the true culprits of this phony crises.

You can do a few things.

  1. Call a spade a spade. Shine the light on this scenario - but do it carefully and in full view of historical examples. You'll quickly find politicians from both parties aligning to dismiss such claims. Take their names and look into their political donations.
  2. Provide training to farmers to arm them with the tools necessary to negotiate their land prices. Show them the basic steps to removing their land from the Williamson Act and work towards basic entitlement steps. Such moves blunt efforts by developers to claim that the land would be worthless without a farm. Farmers must be one step ahead of developers if they hope to stay in control of their land.
  3. Use "environmentalism" to your advantage. The recent federal energy bill paves the way for small landowners and farmers to use their property for energy production. The west side has decent winds and full sun, so consider adding a few turbines and solar panels along side your crops. Not only would you get access to new federal funds and financing, you would also be protecting your land from urban conversion and generating some passive revenue. Revenue generated from electricity could be enough to float you through a season without water.
  4. Get connected with Families Protecting the Valley. While they appear to be a decidedly right wing only organization, they are well funded and well directed to meet this challenge.
I wish you luck if you are one of the farmers affected.

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