You too, New York Times? Didn’t we spend all last year discussing this?
The farmers pay a maximum of $500 per acre-foot of water from the state water project, KFSN-TV reported. But the Tejon Ranch is paying the farmers $5,850 an acre-foot, meaning that the sellers will net $11.7 million.
Tejon Ranch is proposing to buy the water-right; it would pay approximately $6k for every acre-foot in the water right and all their future yields. This is not a profit of ten times what the farmers would pay for any one year’s water.
I’m pretty disappointed that this keeps getting perpetuated. That means that the reporters writing about this plain-out do not know the field*. I read that first story, about the Mojave Water Agency, and instantly knew that no one was paying $5k or $6k per acre-foot of water. No one does that. The highest price per acre-foot I’ve ever heard was about $1800/acrefoot. That was for de-sal in Santa Barbara, and it was so expensive that they don’t use their de-sal plant, all those rich people preferring to switch out their toilets to paying that kind of money. If rich people in Santa Barbara won’t pay $1800 per acrefoot, no one is paying $5K per acrefoot, especially not relatively poor people in a desert exurb. I would believe a bizarre money laundering scheme before I’d believe that anyone in California pays $5k per acre-foot. Frankly, anyone who reports on California water should have enough sense of scale to know that number is vastly wrong.
The shame of this is that these posts and articles miss the real story about Dudley Ridge Water District. They caught the ‘marginal agriculture is transitioning out at the state’s expense’ story, but the truly interesting thing about Dudley Ridge is the way it has completely circumvented all of the public processes that are supposed to tie a special district into local democracy. They are answerable to fucking no one, not their constituents nor district staff, because they have none, and not the county they’re in. It’d take an act of the legislature to get any interests besides the few companies who own land in Dudley Ridge brought into their decision-making. It looks to be legal, but it surely isn’t what special districts are meant for.
***
While we’re here, let’s update our idle calculations (Man, I just saw that I have those fractions upside down. How embarrassing! Why didn’t any of you say anything?):
($11.7M)/(1998 af of water right) = $5,850 per af of water right.
Compared to the Irvine Ranch sale of water and land:
($5,850 per acre for just the water right)/($8,400 per acre for the water right and the land) =0.70
Last time we said that water is 62% of the value of land in the western SJV. This time we see that water is 70% of the value of land in the western SJV. Same ball park, and not surprising. I hope that bankers in the SJV are taking water availability into their lending practices.
***
I defend and make fun of engineers a lot here. But when I see how reporters mangle the story because they don’t understand what is being sold, I return to my belief that engineers are the only people who are prepared to be the sober and devout stewards of our most important natural resource: correct units.
*ADDED: I ended up talking to the reporter for the NYTimes, because I’m that much of a pedant. I take it back; she knows the field. She sounded like all you water junkies. But this means there’s another problem, which is that otherwise informed people are so distant from the prices of water that they don’t have an internal sense of the range. Maybe I’ll blame unit conversion, since urban people talk about gallons and million-gallons. This clearly leads otherwise good souls into error and sin. The righteous measure in acre-feet, people.
On the public record 
All hail the Masters of Dimensional Analysis!
I hope they continue to take their stewardship seriously.
I’m learning about water rights as I read through these articles, so correct me if I’m wrong. Couple questions though..
Acre-feet are a volume and there can be more or less than 1 of them per acre of actual land. A farmer could have 5 acre-feet per acre of crops if the crop has a high water demand. That would mean desert land that’s like $10k/acre could have $25k/acre of additional water rights attached to it. Can this be true?
Also, one of the stats says an acre-foot covers the use of 2 average homes for a year. That means, at 3 homes/acre, the developer needs about 1.5 acre-feet of water per acre. Even at this high quoted price of water rights, would only boost his land acquisition cost by $7,500/acre, or $2,500 per home. Not trivial, but not absurd either. Can this explain why a developer may grossly overpay a farmer if he really needs the water rights?
Side note – If the Irvine Ranch data is from the initial purchase, it is grossly outdated and inaccurate.
The Irvine Ranch data is from a similar sale last year, in which Irvine Ranch bought some land and water rights from Dudley Ridge.
Yes, urban users can pay vastly more than agricultural water users can, because they need less of it.
Yes, desert land that’s like $10K/acre could have $25K/acre of additional water rights. Without the water rights, the land has very little value. What would you do with it? It is remote. It might be a decent solar energy site, but besides that…
Great! Thanks for the reply.
Still wondering though about the high variance in the market price of water quoted in a couple different articles. The link below shows ac-ft priced around $100-$150 over the years. The drought water board was said to overpay at $275/ac-ft last year to incentivize farmers to take a year off. Then the NYT article mentioned farmers paying $500/ac-ft. Does the market swing that much or are some of my data points wrong?
I’m eventually trying to understand how to value buying a perpetual water right vs just buying water in a given year. Am I understanding that difference correctly?
Click to access GWI09.pdf
Spot prices among Westlands Water District farmers (the largest CVP contractor) have hit $650/AF ($0.53/m3). In neighbouring irrigation districts, farmers are paying $6-10/AF (less than one US cent per cubic metre). – Summer ’09 Article
It isn’t so much that the market swings that much (there isn’t a statewide market), as it is that people pay different amounts for water in different places.
In general, I would believe water costs of:
$1 – $30 per acre-foot for anything agricultural in the Sacramento Valley or in the Sierra foothills.
$20 – $200 per acre-foot for anything agricultural in the SJV. I’d expect water in the Friant to cost around $40 per acre-foot, but if I heard $20 – $60 per acre-foot, I wouldn’t be shocked. SWP prices are higher.
These prices are mostly set by the cost of conveyance. Close to where the snowmelt happens, gravity fed? Very cheap. Had to be pumped from northern California, gets pricier.
For urban water, I’d expect to see numbers in the low hundreds. Remember that is the cost for treated water; ag water is raw.
Yes, it looks like there is lots of opportunity for arbitrage, but conveyance gets complicated fast.
How to value buying perpetual water? For the water from Dudley Ridge, you could try reading the State Water Project’s Annual Reliability Report, which forecasts future reliability. Then you could to guess how much water will end up being delivered under the right, figure out a present value for all that and hope you’re close to right? Or call Mojave and Irvine Ranch and ask some district staff what they did.
I’d love for someone to do that and tell me about it, because I haven’t gone to the trouble.