Harvard Quietly Amasses California Vineyards—And The Water Underneath (#GotBitcoin?)
Making a bet on climate change, university’s $39 billion endowment has been snapping up farmland and the related water rights. Harvard quietly amasses California vineyards—And the water underneath (#GotBitcoin?)
Steve Sinton, a rancher, was baffled when a company he’d never heard of began buying large tracts of agricultural land near his pastures at above-market prices. The firm, Brodiaea Inc., over a few months in 2012 acquired more than three square miles of a flat-bottomed valley.
“It was surprising, the prices they were willing to pay,” says Mr. Sinton, a partner in a family-owned ranch that raises cattle and grows grapes. A conventional agricultural business’s returns couldn’t have justified those prices. “It didn’t make sense to me.”
Brodiaea’s drilling permits and property purchases were signed by Matt Turrentine, a local who had recently left his family’s grape-brokerage business. He wouldn’t say who was behind the investment, Mr. Sinton and other locals say. The firm bought more acreage, drilled deep-water wells and began planting vineyards capable of producing billions of grapes annually.
One thing was clear. Brodiaea was willing to pay a premium for land that had good access to groundwater, an increasingly valuable resource given that aquifer levels elsewhere in San Luis Obispo County had fallen steeply. “We didn’t know who Brodiaea was,” says Sue Luft, a retired environmental engineer who lived nearby, “but we knew it was big money.”
They got the answer in 2014, in a real-estate newsletter article about the buyer. It was Harvard.
The university’s endowment manager, Harvard Management Co., 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.
Drought has plagued California in recent years, hitting farmers particularly hard. The Central Coast experienced drought conditions for 30% of the past two decades, compared with 14% of the prior 100 years, a 2015 study found. Droughts have led to spikes in withdrawals from aquifers, many of which aren’t recharging as much during rainy season, says study co-author Noah Diffenbaugh, a Stanford University professor.
Harvard’s bet has proven prescient. The $39 billion fund, among America’s biggest endowments, now values its vineyards at $305 million, up nearly threefold from in 2013, while its overall natural-resources investments have done poorly.
The wager has also earned backlash from some farmers and other locals who fear Harvard eventually will use up groundwater and unduly influence water-use regulations. “Should they be controlling our groundwater plans?” says Debbie Arnold, a San Luis Obispo County supervisor. “I don’t think so.”
Others, like Mr. Sinton, are less concerned, pointing out that some earlier crops were thirstier than grapes. “When I was a kid,” Mr. Sinton says, “they were growing alfalfa and sugar beets there.”
A Harvard Management spokesman says it is the endowment’s policy not to discuss individual investments. In its financial report issued in 2012, the year Brodiaea began buying, Harvard said it liked the natural-resources asset class “because we believe its physical products are going to be in increasing demand in the global economy over the coming decades.”
In a warming planet, few resources will be more affected than water, as more-frequent droughts, storms and changes in evaporation alter a flow critical for drinking, farming and industry.
Even though there aren’t many ways to make financial investments in water, investors are starting to place bets. Buying arable land with access to it is one way. In California’s Central Coast, “the best property with the best water will sell for record-breaking prices,” says JoAnn Wall, a real-estate appraiser who specializes in vineyards, “and properties without adequate water will suffer in value.”
Investors who see agriculture as a proxy for betting on water include Michael Burry, a hedge-fund investor whose wager against the U.S. housing market was chronicled in the book and movie “The Big Short.” In a 2015 New York Magazine interview, Mr. Burry was quoted as saying: “What became clear to me is that food is the way to invest in water. That is, grow food in water-rich areas and transport it for sale in water-poor areas.” Mr. Burry declined to comment.
David Gladstone, chief executive of Gladstone Land Corp. , a publicly traded farmland-investment trust, says the recent California drought was profitable for his company and tenant farmers because they had access to water while others didn’t. The changing climate has made control of water more valuable, he says. “That is certainly true in most of the U.S., but very true in California.”
In California vineyards, the water-proxy math is compelling. When grapes are harvested, about 75% of their weight is water. California’s wine is a globally coveted product, so owning vineyards effectively turns water into revenue.
“You can’t farm without water. Period,” says Madeleine Fairbairn, an assistant professor at University of California Santa Cruz who studies the phenomenon of investors buying farmland. “California land values are therefore very linked to water rights.”
Water has long been contentious in California. Los Angeles used subterfuge to acquire water rights from the Owens Valley, a deal that helped inspire the movie “Chinatown.” More recently, farm irrigation has raised concern among some environmentalists who argue that crops such as almonds use excessive water.
Climate change is making the situation worse, scientists and state officials say. The Sierra Nevada snowmelt that satiates much of the state has become harder to count on, sometimes coming earlier in the season and overwhelming the capacity of reservoirs to contain it before it goes to sea—or barely coming at all.
A year before Harvard began acquiring property, local officials began worrying about declines in the region’s groundwater basin. It was once celebrated as one of the largest freshwater aquifers west of the Mississippi River, but the level in certain wells had fallen significantly.
In early 2011, San Luis Obispo County issued a report with a map showing in deep red—a “red zone” or “red spot,” locals call it—where groundwater had fallen more than 70 feet. “We’re having more heat and more drought,” says Willy Cunha, a vineyard manager in the county. That has put a premium on land with good water, he says. “It is like California beachfront property. God isn’t making any more of it.”
There are no tourist markers or plush tasting rooms at Harvard’s vineyards, just “no trespassing” signs, rutted roads and farming equipment. Harvard Management’s agricultural operation sells grapes to winemakers.
Harvard’s foray harks back to 2012, when Mr. Turrentine and James Ontiveros, a local vineyard manager, founded an agricultural investment advisory firm named Grapevine Capital Partners LLC and pitched the idea to Harvard. Harvard signed on.
Grapevine Capital “identified an area where the groundwater is very good, and it’s outside the red zone,” says Tony Correia, an agricultural-land appraiser specializing in vineyards. Wine-industry writer Rusty Gaffney wrote in 2015 that Mr. Ontiveros had spoken to him of the land Grapevine steered Harvard toward, telling him “the region had sufficient underground water aquifers to be successfully farmed despite recent climate changes and drought conditions.”
Mr. Turrentine says he doesn’t have permission from Harvard to discuss the investments. Mr. Ontiveros didn’t respond to requests for comment.
The land Grapevine identified for Harvard was in a flat-bottomed valley south of Shandon, 190 miles northwest of Los Angeles, county records show. The groundwater in this area was much easier to tap than in other grape-growing operations that form the heart of the Paso Robles wine region, according to reports from the local groundwater agency. It was relatively close to the surface and had fallen less than 30 feet.
In addition, a giant aqueduct passed through the valley on its way to Santa Barbara. Local officials had negotiated rights to tap into it.
In June 2012, Mr. Turrentine filed paperwork to create Brodiaea—the scientific name for a type of lily—which was wholly owned by Harvard, although those filings didn’t show that. In July, Brodiaea bought its first property in the county. It generally bought unlisted properties, many of them carrot farms, local brokers say.
By autumn, Brodiaea had pieced together about 3,000 acres, county records show, and started to plant vineyards. The firm eventually became one of San Luis Obispo County’s 10 largest property owners by taxable value.
In the summer of 2013, several residential wells ran dry between Paso Robles and Shandon, roughly 10 miles west of Harvard’s vineyards. The general consensus was that the drought led vineyards to pump more well water. Residents began attending county meetings demanding action in the groundwater basin, which included Harvard’s land.
Local resident Lindsay Pera told elected officials at a county meeting in July 2013 that her home was surrounded by green vineyards and “that green is the water we are trucking, from our ground, out of the county in the form of wine.” She says she still worries about the large-scale extraction of water from the Paso Robles basin.
The county supervisors issued an emergency moratorium on new agricultural wells starting Aug. 27, 2013—not just wells in the affected areas but also in areas such as Harvard’s holdings where groundwater hadn’t fallen as much.
The day before the moratorium took effect, Harvard’s Brodiaea filed for permits to drill seven wells deeper than anything else in that part of the county—enough to fill an Olympic-size swimming pool in 90 minutes. One well hit water at 112 feet, but the driller completed the well to 1,200 feet deep, county records show.
This would allow it to keep drawing water, even if droughts dropped the groundwater level further.
About four months later, Harvard filed paperwork to create a new entity, SLO San Juan Road LLC. Messrs. Turrentine and Ontiveros’s firm, Grapevine, acted as the agent for the new entity. Through SLO, Harvard continued buying property south of Shandon. In early 2014, Brodiaea bought an 8,700-acre cattle ranch in the nearby Cuyama Valley.
Harvard’s firms continued to plant rootstock on its Shandon-area properties. Its new vines would soon carpet most of the valley.
In March 2014, the Farmland Investor Letter revealed that Harvard was backing Brodiaea. Some local residents were vocally upset, saying that Harvard and Mr. Turrentine were positioning themselves to have an outsize influence on the future of groundwater use, leaving smaller rural residents without a voice.
In early 2016, rigs hired by Brodiaea began to drill 12 water wells on its Cuyama Valley property. When they were done, workers began to plant vines there as well, pumping up aquifer water to nourish the new plants.
Cindy Steinbeck is a vineyard owner whose family had grown grapes in the area for five decades. She wrote to Harvard Management’s president in March 2016 saying its use of limited-liability companies “seems designed to obfuscate Harvard’s activities in the area.”
“Such an investment does not make economic sense,” she wrote, noting above-market prices Harvard was paying, “if your intent is simply to grow and sell grapes. It would, however, make perfect sense if the investment wasn’t for farming but rather for the brokering of water.”
A Harvard official responded that its investment was “purely agricultural in nature” and that the vineyards prioritized water conservation. She says she remains concerned.
Kat Taylor, an environmentalist and wife of hedge-fund billionaire and liberal activist Tom Steyer, resigned earlier this year from Harvard’s board of overseers in protest of the endowment’s investments in things such as fossil fuels and water holdings she says threaten the human right to water. The board helps run the university but doesn’t have direct responsibility for the management company.
“It may, in the short run, be about developing vineyard property,” she says of Harvard’s California investments. “In the long run, it was a claim on water.”
Harvard’s investing guidelines say respecting local resource rights are of increasing importance “in the coming decades as competition for scarce resources, such as arable land and water, intensifies due to increasing global population, climate change, and food consumption.” All plans Harvard has filed indicate it intends to use its water to grow grapes.
In 2014, California experienced its warmest year on record. Gov. Jerry Brown, seeking to preserve groundwater, signed sweeping legislation to prevent depletion. The Sustainable Groundwater Management Act identified 20 “critical” basins, including those under Harvard’s vineyards, that needed to develop plans by 2020 to limit groundwater drawdowns.
To help write those water plans, large landowners in Shandon voted in 2017 to create their own water district governed by a five-member committee. Mr. Turrentine was elected to the committee, giving Harvard a voice in the planning.
The groundwater basin in nearby Cuyama Valley was also on the “critical” list. Mr. Turrentine’s Grapevine hired hydrologists to argue to the state that there was a geologic fault separating Harvard’s Cuyama vineyards from the rest of the basin.
So far, the state has disagreed with Harvard’s request to designate a new basin—a designation that would mean it wouldn’t have to compete with some big farms for limited water allotments.
“If they start to pull on what I got,” says Jon Jones, a farmer near the Harvard vineyard, “there’s going to be an issue.”
Roberta Jaffe, who with her husband, Steve Gliessman, runs a small family vineyard and olive orchard nearby, is concerned warming weather is already making water more scarce and valuable. She worries Harvard could seek to send water toward cities in Southern California. As a precedent, she points to Cadiz Inc., a California water-supply company that has obtained county and federal permission to build a pipeline from under the Mojave Desert to sell 16.3 billion gallons a year to Southern California water utilities.
“The most unimaginable things can happen,” she says.
Harvard has applied to build three large lined reservoirs on its Cuyama Valley vineyard and is waiting to hear from county officials. Each could hold 16 million gallons. Ms. Jaffe and others have argued against it.
At a meeting this autumn of the local planning commission, Brodiaea consultant David Swenk said the company was within its rights to develop the water resources. “A farmer has a right to farm,” he said, “and can utilize the water under their property.”
The Water Wars That Defined The American West Are Heading East
Urban growth and surge in irrigation fuel fight between Georgia and Florida; soybeans or oysters?
Water stress, a hallmark of the American West, is spreading east.
The shift is evident on Casey Cox’s family farm in Georgia’s agricultural heartland, where she turned on five giant rotating sprinklers to see her sweet corn through weeks of hot, dry weather last spring.
“If we hadn’t had irrigation, our crop would have burned up completely,” said Ms. Cox, who with her father also produces soybeans, peanuts and timber on 2,400 acres.
More water to save Ms. Cox’s crops, though, often means less for neighbors to the south such as Rickey Banks. He gave up his life as a Florida oysterman when his fishery, which depends on water from the same river basin as Ms. Cox’s farm, collapsed during a drought.
Increasing competition for water is playing out across the eastern U.S., a region more commonly associated with floods and hurricanes and one that was mostly a stranger, until recently, to the type of bitter interstate water dispute long seen in the West.
Eastern farmers’ rising thirst for water, together with urban growth and climate change, now is taxing water supplies and fueling legal fights that pit states against each other. The shift has exposed the region to changes in water supply occurring globally as swelling populations, surging industrial demand and warmer temperatures turn a resource seen as a natural right into a contested one.
In the U.S., burgeoning coastal populations have lowered water tables and dried up streams in Long Island, N.Y. Near Tampa, Fla., groundwater pumping has drawn saltwater into aquifers, drained lakes and triggered sinkholes. Decades of pumping by farmers and others have led to sharp declines in critical aquifers that flank the lower Mississippi River.
“What keeps me awake at night is not western water issues—it’s the East,” said Lara Fowler, an attorney and professor of water law and policy at Pennsylvania State University.
In 2013, Florida and Georgia’s long-running conflict over the Apalachicola-Chattahoochee-Flint River basin landed before the U.S. Supreme Court, the sole arbiter of interstate water disputes.
The legal battle inched forward in early November when a “special master” appointed by the high court, the second one the dispute has had, heard arguments from the states’ attorneys in a courtroom in Albuquerque, N.M. Special masters are servants of the Supreme Court, conducting hearings, building a record and issuing a report for justices to consider in cases that don’t move through lower courts. Ultimately, the special master will likely say which party should prevail and why.
One striking marker of expanding stress is the 100th meridian, a divide between water-rich and water-poor areas drawn nearly a century and a half ago by geologist and explorer John Wesley Powell. According to a team of scientists including those at Columbia University’s Lamont-Doherty Earth Observatory, the boundary—severing states from North Dakota to Texas—has shifted about 140 miles eastward since 1979 because of warmer temperatures or reduced rainfall. The scientists predict the West’s drier climate will continue to push eastward and pressure water supplies for farms and cities alike.
Irrigated agriculture has proliferated across the Eastern U.S. in the past half-century, as farmers sought to protect against dry spells and boost the predictability and profitability of harvests.
The threat is a familiar one for Mr. Banks in Florida, who in 2012 watched the oyster fishery that had sustained his family for decades fade amid a withering drought.
Florida blames Georgia farmers such as the Coxes, along with metropolitan Atlanta’s thirst, for the loss of such livelihoods. It says the explosion of irrigated agriculture in southern Georgia and Atlanta’s dramatic growth have drained too much water from the states’ shared river system, shrinking flows to Florida’s Apalachicola Bay.
The reduction, Florida argues, caused salinity to spike in the bay, fueling an invasion of oyster-eating predators such as conchs and sponges. Only a handful of oystermen ply the bay’s waters today, down from hundreds a decade ago. Local restaurants that once boasted their “seafood slept in the bay last night” now import oysters from Texas or Louisiana.
Mr. Banks left Florida in search of carpentry work, eventually returning to launch a charter service that takes guests fishing and hunting for wild boars and alligators.
“Oystering was a heritage, not only a job,” said Mr. Banks, 49, who began working on his father’s oyster boat at the age of five.
The Oyster Business Has Faded in Florida’s Apalachicola Bay
Hundreds of oystermen plied waters of the Apalachicola Bay in Florida until a rise in salinity brought in more oyster-eating predators. In a suit against Georgia, Florida says more irrigated farming means too much fresh water is drained from a river system the states share.
Irrigated acreage in Georgia increased 15-fold from 1960 to 2015, according to U.S. Geological Survey data, as farmers sought to boost the predictability of their harvests. Much of the increase is along lower portion of the Flint River, which rises near Atlanta and runs south through some of Georgia’s most productive farmland.
Crop yields in the state have soared. President Jimmy Carter, who ran his family peanut farm before he ran the country, once honored Georgia farmers who harvested a ton of peanuts per acre. Their descendants can raise triple that. So critical is irrigation, farmers say, that most bankers won’t finance their operations without a system installed.
At peak times in the growing season, farmers in the lower Flint River basin pull hundreds of millions of gallons of water a day from an aquifer called the Floridan that helps feed the river through fissures in the limestone below ground. Gordon Rogers, executive director of an advocacy group called the Flint Riverkeeper, says that during brief periods, the farmers’ water draw equals that of metropolitan Tokyo.
Burgeoning populations, particularly in the Southeast, are taxing water supplies.
The area around the Cox farm, in the southwest corner of the state, bordered by Alabama and Florida, is blessed with rain, an average of 52 inches a year. Winter and early spring are particularly wet in this area.
For a farmer, however, timing is everything. Two or three weeks without rain during critical phases of crop development can sharply reduce the yield as well as the quality of a crop such as sweet corn.
In a wet year, rainfall quickly replenishes the Floridan aquifer. But as irrigation wells have multiplied, far less water has flowed from Georgia into Florida during droughts. In 2012, water in the Flint dropped dramatically. Creeks that flow into it, with names from the region’s Native American heritage—Ichawaynochaway, Kinchafoonee and Muckalee—almost or entirely dried up.
Beyond Georgia, farmers across the eastern U.S. have steadily embraced irrigation, outfitting fields with rotating sprinklers to precisely control when their crops get water and how much. Irrigated acreage quadrupled in Tennessee and more than doubled in Indiana, Delaware and South Carolina between 1997 and 2017, according to government data.
Irrigation’s eastern push lies at the heart of Florida v. Georgia, one of three interstate water disputes pending before the Supreme Court. Western states have sent such disputes to the high court for more than a century. Now eastern states are the combatants in two of the three water cases before the court.
Florida seeks to limit Georgia’s water use. In 2015, Florida’s attorneys subpoenaed the Cox farm, arriving during the fall harvest to collect a decade’s worth of irrigation records and more. The two states have submitted more than seven million pages of documents, said a person familiar with the case.
The special master appointed by the court recommended the Supreme Court deny Florida’s request for a cap on Georgia’s water use, saying he wasn’t certain that a cap would result in enough additional water at the right times to benefit Florida.
That is because of the central role of the U.S. Army Corps of Engineers, which manages dams and reservoirs in the region and controls when and how much water is released. Since it isn’t a party to the case, the Corps wouldn’t be bound by any court order, the special master said. The recommendation echoed Georgia’s argument, which also calls Florida’s problems largely self-inflicted.
After a hearing before the Supreme Court last year, the Justices decided 5-4 to reject the special master’s proposal. They named a second special master.
Pumping too much water from the aquifers that feed rivers and streams depletes them.
At her farm near Camilla, Ms. Cox, 28, called irrigation the single most effective risk-management tool a farmer can have and said irrigation technology has grown more efficient over time. “If you took it away from us, we would not be able to farm,” she said, as she checked one of her family’s nine center-pivot sprinklers, stretched like a winged bird over a field of sweet corn.
Every few minutes, her phone dinged with a message from the center-pivot, telling her when it had turned on or off or had changed direction. “My pivot will not stop texting me,” she said.
En route to another field, Ms. Cox wound past pine-tree plantations and live oaks draped in Spanish moss, ticking off achievements irrigation made possible. Georgia produces more peanuts than any other state. A predictable water source means its farmers are reliable suppliers to candy companies such as Hershey Co. and to peanut-butter makers like J.M. Smucker Co.
Irrigation has also enabled farmers to plant higher-value but thirsty vegetable crops that can boost profits, and helps produce robust grain crops to supply chicken producers such as Tyson Foods Inc. Along with related businesses, agriculture contributed $16.7 billion to southwest Georgia’s economy in a recent year, according to the University of Georgia.
“Irrigation is the linchpin of our economy,” said Glenn Cox, Casey’s father, who is 64.
Throughout the East, newer industrial activities such as oil-field hydraulic fracturing also are demanding more water. “Out West, those states were water-stressed before any Europeans showed up,” said Matthew Draper, an attorney who specializes in transboundary water disputes. “Out East, we’re just now starting to bump up against that limit where someone using water means someone else is going to go without.”
The Coxes said the multiyear drought in California prompted vegetable growers there to invest in farmland in southern Georgia and northern Florida. Bo Abrams, a professor of water law at Florida A&M University College of Law in Orlando, predicts that over time, water shortages will drive ranching and field-crop production eastward from Arizona and the Great Plains.
At the same time, in Georgia, “What we’re seeing is periods of drier dries and wetter wets,” said Murray Campbell, a farmer who grows cotton and peanuts 20 miles east of the Coxes.
That trend is likely to continue, according to the latest U.S. National Climate Assessment, a legally mandated report spearheaded by the National Oceanic and Atmospheric Administration. More frequent and severe droughts in places such as the Southeast could increase conflicts over water, experts say, even as periods of heavy precipitation like those that brought flooding to the Midwest last spring occur more often. Flooding drowns fields in too much water, and drought conditions still can develop between fewer, larger storms.
More states in the East are placing first-ever restrictions on permits for water use, said Barton “Buzz” Thompson, a professor of natural-resources law at Stanford University, who served as special master in a decadelong fight between Montana and Wyoming over Yellowstone River water.
Interstate battles over water supplies, long a part of life in the American West, are spreading east.
Some water experts say eastern states are still unprepared for scarcity, armed with a patchwork of regulations and laws that assume water will remain plentiful. Unlike in the West, where most major river basins are governed by interstate compacts, only a few such agreements exist in the East.
In Georgia, a moratorium on new drilling into parts of the Floridan aquifer has slowed expansion of irrigated farmland in the Flint River basin for now. Farmers are allowed to drill into deeper aquifers, although that is more costly.
Uncertainty about the Supreme Court case has introduced new risks. Restrictions on agricultural water use could make a land purchase seem foolish, said Mr. Campbell, the cotton and peanut farmer. “That’s the kind of thing guys lay awake at night thinking about—what if I can’t irrigate that land?” he said.
“We see the conflicts and realize you’ve got to do something,” Mr. Campbell said. “But it would be difficult for us to turn the water off.”
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