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Our research and analysis is fueled by people like you. Help keep Food First an independent think-and-do tank today at foodfirst.org/support. INSTITUTE FOR FOOD AND DEVELOPMENT POLICY WINTER 2020 VOLUME 26 • NUMBER 4

California’s San Joaquin Valley. Photo by Don Graham (CC BY-SA). Rivers of Finance, But Not a Drop to Drink: Financialization, Power and Agriculture in California’s Parched Central Valley By Tom Philpott

The San Joaquin Valley stands as one of the jewels of US agriculture: a massive producer of fruits, vegetables, wine grapes, and nuts. Like the state of California itself, it came into US possession during a gold rush—and has been shaped by money and power ever since.

When you think of almond farms, the industry would like you to think of independent growers like Joe Del Bosque. I first met Del Bosque in 2014, when I contacted the Almond Board of California for its perspective on the drought. Del Bosque had become a passionate spokesman for the dilemmas independent growers face in a region characterized by a tight labor supply and an even tighter water supply. When we met, he explained how he’d had to fallow hundreds of acres of his prized organic melon fields to divert water to his almond groves, even though the melons require far less water than almonds. But melons are annual crops, so cutting back for a season means a one-time reduction in income; not watering an almond grove could destroy a six-figure investment and a robust multi-year income stream. Ultimately, farmers like Del Bosque are foot soldiers in California’s nut boom, not its leaders. One firm looms over the boom like a colossal marketing display in a supermarket produce aisle. Owned and operated by the Los Angeles ty- coons Stewart and Lynda Resnick, the Wonderful Company calls itself the “world’s largest vertically integrated pistachio and almond grower and pro- cessor.”1 Wonderful owns and farms at least fifty thousand acres of nuts in California—more than its closest com- petitor by a factor of three.

The power couple have flexed their political muscles to make sure their Central Valley California Aqueduct. Photo by Don Barrett (CC BY-NC-ND). plantations get plenty of water from California’s publicly funded irrigation dominated the global oil market the The Financialization of projects. They store it for dry years in way California does the trade in al- Farming the Kern Water Bank, a man-made, un- monds and pistachios. The state’s farms Massive financial interests—banks, derground reservoir built by the state of churn out 80 percent of the world’s al- 2 pension funds, investment arms of California for public water storage. The monds, the great bulk of them in the 3 insurance companies—have followed thirty-two-square-mile reservoir was San Joaquin Valley. Valley farmers are the Resnicks into the nut trade. It’s not meant to collect and store excess surface also responsible for more than half the hard to see why. Putting in a sizable water flowing from the Sierra Nevada global pistachio output, easily topping orchard requires deep pockets.5 Even during wet years, banking it for urban their only serious rivals, their counter- 4 for a modest two-hundred-acre plot of areas to use in droughts. parts in Iran. pistachios, you’re looking at upwards of $500,000 to get in the game—and In an infamous 1994 deal known as the But there’s a catch: the money can about $1.2 million for almonds, at Monterey Agreement, the Resnicks’ flow only so long as water does. $6,200 per acre. Then you have to wait holding company essentially privatized According to the Western Farm Press, three or four years for the orchard to a state-funded water asset designed a Wonderful exec revealed to a crowd establish and start churning out a har- to be a public good by gaining a con- of the company’s nut growers in Visalia, vestable product. trolling stake in the water bank. Ever CA, that Wonderful was spending since, the Kern Water Bank’s liquid about $6 million per year on a public Once you’re in, though, the rewards are dividends have accrued to the Resnicks’ relations and lobbying effort to keep startling: Davis researchers estimate nut groves, while also giving them the water deliveries from the big irrigation that once an orchard is up and running, option to sell water to cities if that projects flowing to the valley; and pro- almonds can reasonably generate (de- ever proves more profitable than nuts. posed that the industry come together pending on yield and price) $1,200 per Meanwhile, the Resnicks ramped up and commit to devoting a fraction of acre annually above production costs, their campaign donations at the federal all pistachio sales to the fund, enough over a life-span of around twenty years. level, where lawmakers have a say in to generate an additional $2 million in how much surface water makes it into a typical year. So a 200-acre almond farm that cost the Kern bank. $1.2 million to establish can throw off “Pistachios are valued at 40,000 dollars $240,000 per year in income. The smart Their nut dominance puts the Resnicks an acre. How much are you spending money has sized up the situation and at the helm of a multi-billion dollar in the political arena to preserve that decided to pounce. Wall Street’s move global market. Saudi Arabia wishes it asset?” the exec asked.

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2 • FOOD FIRST BACKGROUNDER The financialization of farming is pitched as a low-risk way for investors to cash in on two long-term trends. into almonds and pistachios is part of a the S&P’s return of 9.6 percent with processing and marketing side of the broader trend: the rise of farmland as an much less of the usual stock-market business.10 “asset class”—finance-speak for a type volatility.7 of investment (e.g., stocks and bonds) Another financial bigfoot that has that belongs (according to Wall Street Some states—including Midwestern invested heavily in this space is the salespeople) in every wealthy person’s industrial agriculture titans Iowa, sprawling Canadian insurance and well-balanced portfolio. Kansas, Minnesota, and the Dakotas— financial services giant Manulife effectively ban ownership of farmland Financial Corporation, through a sub- The financialization of farming is by financial interests.8 Not California. sidiary called Hancock Agricultural pitched as a low-risk way for investors And the Golden State’s nut boom has Investment Group (HAIG). Owning to cash in on two long-term trends. The been a driving force in the success of the around $3 billion worth of land global- first is a growing global middle class farmland asset class. By late 2018, the ly, HAIG calls itself one of the world’s hungry for high-protein, high-status NCREIF Farmland Index was tracking “largest managers of farmland invest- foods like meat and nuts. The second $9.4 billion worth of US farm property ments for institutional investors”— is the steady shrinkage of arable land owned by investors. think pension funds, hedge funds, under pressure from pollution and ur- and university endowments. HAIG ban sprawl. Farmland investments are In a 2013 note to clients, Heather owns at least 24,000 acres of almonds, also largely immune from economic Davis, then an executive for TIAA (for- pistachios, and walnuts, making it shocks, performing well even when merly known as TIAA-CREF), a New California’s second-largest nut grower, stocks and bonds plunge, boosters York–based retirement and investment behind only the Resnicks.11 note. And they offer investors two fund with $1 trillion in total assets potential ways to make money simul- under management, made the case for Then there’s Prudential Financial, taneously: from annual income in the buying San Joaquin Valley farmland the vast insurance and investment form of either crop sales or rent (if it’s and planting nut groves.9 Two “counter- conglomerate with assets under man- leased to an independent farmer); and vailing factors”—surging demand and agement exceeding $1.4 trillion.12 A from appreciation, assuming the land’s vanishing land—“make the agricultural Prudential subsidiary called PGIM value keeps rising.6 sector, including almond farms, an at- Real Estate Finance owns a farmland tractive long-term investment theme,” portfolio worth $977 million. In late Back in the 1990s, US farmland got she wrote. Land suitable for almonds in 2018, its website trumpeted two “recent what every asset class needs to take particular, she argued, has the potential acquisitions:” a pistachio farm in the flight: an index that financial brokers to combine the steady income of bonds heart of the San Joaquin Valley that can brandish to clients. That’s when a with the growth potential of stocks—an “will provide near term cash flow” to group called the National Council of investor’s holy grail. its clients, and an array of land buys Real Estate Investment Fiduciaries in Tulare and surrounding counties (NCREIF) launched its Farmland TIAA, whose farm assets are now that made up a “significant portfolio of Index, which tracks the annual income managed by its subsidiary Nuveen, well-developed orchards.” and appreciation of U.S. agricultural owns 37,000 acres of California farmland held by third-party investors. land, producing “more than 18 million In June 2018, PGIM released a bro- pounds of almonds, enough to circle chure titled Low-Hanging Fruit: Why Values have risen steadily, even when the world more than nine times or fill You Should Plant U.S. Agriculture in the dot-com bust of the early 2000s the fair territory at Yankee Stadium Your Institutional Portfolio. Its goal: to and the mortgage meltdown of 2008 more than a foot deep,” Davis boasted. entice people to invest in U.S. farm- tanked stock prices. Overall, be- Following the Resnicks’ lead, TIAA land. Noting that California boasts tween 1992 and 2017, the NCREIF not only snaps up land for nut groves one of the globe’s five Mediterranean Farmland Index delivered an average but also has pursued a “vertical inte- climates, PGIM reminded read- annual return of 11.8 percent, beating gration” strategy by buying into the ers that nuts are mechanically

3 • FOOD FIRST BACKGROUNDER requiring sizable capital investment As of late 2019, almond and pistachio will naturally transition farmland plantations were still expanding at a holdings from individuals to institu- steady clip, with no sign of slowing over tions.” One topic not mentioned in the water-availability concerns. The ongoing pitch: water scarcity in California nut influx of Big Capital into the valley is country. a signal that Wall Street thinks that well-capitalized and well-connected The gusher of institutional cash flowing nut and wine operations can keep the into the San Joaquin Valley is unlikely water flowing even as the Sierra Nevada Almond grove in California. Photo by Anthony to stop anytime soon. In a 2018 re- snowpack declines, the valley floor sinks, Citrano (CC BY-NC-ND). port, HAIG took the measure of what aquifers empty, and water gets scarcer it called the “investable universe of and more poisonous for residents. A harvested—meaning very low labor farmland”—that is, land not currently bet, in short, that as water grows more costs—and that land planted with owned by investment firms but ripe for scarce, its tendency to flow towards permanent crops has delivered an av- the plucking. The group scanned the money only increases. While people erage 14.2 percent annual return over globe for “core investment geographies making these wagers might be acting the previous twenty years, trouncing that offer a relatively secure business rationally in terms of their own financial stocks, bonds, the broader real estate environment” and “the necessary scale interests—squeeze as much profit out of market, and timberland, farmland’s for institutional farm management.” the land while the getting’s still good— rival as an alternative investment. The group identified 570,000 acres of the number-one source of US fruits and San Joaquin Valley land suitable for al- vegetables faces severe pressure. As Joe The brochure noted that the financial- mond investments, and another 50,000 Del Bosque’s story shows, dwindling ization of the U.S. farm remains “in its acres for pistachios.14 water means ever more emphasis on nascent stage.”13 Despite its rapid rise pricy export-oriented snack crops—and as an investment target, just 3 percent Again, just a few years after an epochal less on fruit and vegetable crops. And of U.S. farmland is owned by institu- drought and amid mounting research if climate models about the future of tional capital, the firm reported. But showing that San Joaquin Valley ag- California weather hold true, mega- not for long: “an aging farmer gen- riculture is far overstepping its water droughts and mega-floods will add eration, fractional family ownership limits, the topic of water availability is severe chaos to this race to the bottom structure, and technological advances missing from the report. of the aquifer.

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