[REN #645] Harvard’s Hidden Control Over California Farmland & Water Right

Picture of Grapes on a Vine for Real Estate News for Investors Podcast Episode #645

The battle over water rights is simmering in Southern California with a powerful East Coast investor. According to the Wall Street Journal (1), the Harvard University endowment has been buying large tracts of farmland, and turning them into vineyards. It’s an investment strategy that will provide short term returns from the grape harvest, and a long-term hedge, according to the Journal, against climate change — because farmland comes with water rights.

The buying spree began in 2012 in San Luis Obispo County, through a Harvard-owned entity called Brodiaea. Since then, Brodiaea has pieced together several large tracts of farmland for a total of about 3,000 acres along with the corresponding water rights. There are now vineyards stretching across that land with a grape harvest that is sold to other California winemakers. So, you won’t see a “Harvard” label on any of the wine that you buy.

Harvard’s Buying Spree

This all started happening at the beginning of the five-year drought, and it wasn’t known at first that Harvard was behind these agricultural real estate deals. But that’s also when concern started growing about the water table, because of the drought. Some residential wells ran dry and local residents and farmers demanded more control over the groundwater, including water used by the Harvard vineyards.

The county called for a moratorium on new wells, but several deep-water wells were drilled at the Harvard vineyards before that order went into effect. Brodiaea and another entity also continued to purchase land. One of Brodiaea’s bigger deals was an 8,700-acre cattle ranch in Cuyama Valley. The valley stretches across several counties including San Luis Obispo and Santa Barbara.

Local farmers found out the Harvard endowment was the true owner of all these new vineyards when a real-estate newsletter spelled it out in 2014. That has apparently peaked worries about the endowment’s power to control the water supply over the long-term, as global warming makes water more precious.

County Orders Environmental Review

Currently under dispute is a plan to create three big ponds for Harvard vineyards. The ponds would hold millions of gallons of water that would be used to spray crops during a frost to keep them from freezing. The county had granted approval for the ponds, but the locals voiced their concerns and county officials responded by ordering an environmental review. The three-pond plan is now on hold. Harvard has reportedly appealed and a hearing is set for next year.

Local farmer Robbie Jaffe told Bloomberg (2), “We’re very supportive of agriculture, but we don’t want agriculture to dry up our resources.” He owns a vineyard next door to the one owned by the Harvard endowment. He says of the plan to build the ponds, “This has the potential to be further devastating to our very limited basin.”

Global Investment Strategy

The purchase of California farmland is part of a long-standing investment strategy to buy agricultural land in countries around the world. According to a report by Grain (3) which advocates for small farmers, Harvard’s endowment has spent about $1 billion for control of more than 2 million acres of farmland worldwide. That has turned the endowment into one of the world’s biggest global farmland investors. It has also resulted in big disputes, not just in California, but elsewhere.

The Grain report, called “Harvard’s Billion-Dollar Farmland Fiasco,” highlights the kinds of problems that Harvard has been facing. In Australia, workers uncovered an Aboriginal burial ground as they dug ditches for irrigation. In South Africa, locals say they are fighting for long-held cattle grazing rights and access to old burial grounds. In Brazil, there are title issues with about a third of the properties in dispute, according to Grain. Disputes have sprung up over the use of pesticides, clear-cutting of trees, and of course, water rights.

Water Rights in Very Dry California

The dispute in California hits closer to home for many of us, especially as we experience more severe droughts and wildfires. California just barely survived the last drought, and is still feeling the effects of the dry spell as wildfires race across a still-parched landscape. Water was a scarce commodity during the drought, but it’s always been in short supply. The battle over water goes way back, pitting cities against farmers and the north against the south.

The Harvard endowment adds another layer of intrigue to this story. As the Wall Street Journal reports, the local didn’t know that Harvard was the owner of these new vineyards. They only knew that the buyer paid “big money” for the land, and of course, the water rights. It’s been a winning investment for Harvard, so far. The Journal says that its California vineyards have tripled in value since 2013, to about $305 million.

The paper says that Harvard was “stealthily building a sizable grape-growing business on the Central Coast through entities including Brodiaea. With the land, it was acquiring rights to vast sources of water in a region where the earth’s warming is making the resource an ever-more-valuable asset.”

As the Wall Street Journal points out, buying agricultural land with water rights is one way to “buy water.” The paper says that Harvard has responded to concerns about water use and future water rights by saying the investment is “purely agricultural” and that vineyards are prioritizing water conservation. Harvard has also acknowledged that respect for local resource rights will become more important as global warming and population growth create competition for things like water and farmland. But locals are concerned about this growing empire, and that Harvard will end up with too much control over the water supply. San Luis Obispo County Supervisor Debbie Arnold told the Journal, “Should they (meaning Harvard) be controlling our groundwater plans?”

Harvard may be making a very wise investment with its purchase of agricultural land in California. It’s also bringing a new California water rights issue to the forefront.

Links:

(1) Wall Street Journal Article

(2) Bloomberg Article

(3) Grain Report

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