Water-Rich Farmers Get a Flood of Sale Calls : Drought: Pleas come from the state, which is setting up a water bank, and from dry regions. But selling has uncertain repercussions and caution prevails.

Perched on the edge of this Yolo County farm town, the venerable Conaway Ranch has built its name on the rice, tomatoes and sugar beets it has grown for decades on a fertile plain along the Sacramento River.

But the farm’s hottest seller this year is a decidedly different commodity--water.

Since December, phones at the ranch have been alive with relentless queries from Los Angeles, Bakersfield, the Bay Area and other parched regions. Please, one caller after another implores, fallow your land this year and sell the water to us.

With California’s reservoirs dropping treacherously low and harsh rationing programs pinching consumers in the north and in the south, a near-frantic hunt for water to aid drought-stricken regions has begun.

Seemingly overnight, rice farmers such as the partners who own Conaway Ranch find themselves in the unfamiliar glare of the spotlight--courted by desperate suitors with open checkbooks and hard-luck stories.

The state, taking a historic action on orders from Gov. Pete Wilson, recently opened an emergency water bank to negotiate sales from growers with ample water to municipalities and farm belts that lack it.

Meanwhile, many panicky agencies--worried that the lumbering state bureaucracy might not come through in time--have struck out on their own, lobbying, urging and even begging farmers to sell their water at prices rising faster than a Sierra stream in springtime. A normal springtime, that is.

While there were some creative water transfers during the 1976-77 drought, both the scale of this year’s undertaking and the state’s aggressive role as water broker are unprecedented. While it’s too early to judge whether the bank can capture and parcel out enough water to keep California comfortably afloat, the consequences of the pioneering experiment--politically, economically and environmentally--could be far-reaching.

For some growers, 1991 feels like a blessing. Wooed by water-poor regions with hefty shopping budgets, these farmers believe they can be good Samaritans and make a healthy profit in the process.

“The state of California is in dire need this year, and we want to act responsibly,” said Andrew Efstratis, a managing general partner of the 18,000-acre Conaway Ranch. “But we’re businessmen. . . . We will certainly be making money off our water.”

Indeed, water that attracted offers of $60 an acre-foot at Christmas is now fetching bids three and four times that amount, Efstratis said.

But other farmers, while admitting they are attracted by the tantalizing sums their water may be worth in this fifth year of drought, are squeamish about venturing into the unmapped world of water marketing. Freeing up water for cities, they fear, could set a dangerous precedent, perhaps jeopardizing their generous water rights and eroding agriculture’s historic grip on the lion’s share of the state’s supply.

In some circles, another source of reluctance exists. Some of the neediest buyers in line at the bank are Kern County farmers, whose primary supply of water--from the State Water Project--has been cut off this year. Northern California growers, who view many San Joaquin Valley farmers as competitors, aren’t inclined to bail them out.

“We’re breaking new ground here, and a lot of us are struggling with this and just don’t know what to do,” said Michael Arens, a third-generation rice farmer in Butte County who is spending long hours mulling his options. “Farmers aren’t bad guys--we want to help if we can. But we don’t want to jeopardize our livelihood.”

The goal set by the Department of Water Resources is to pool one million acre-feet of water in its centralized bank account. That supply--roughly enough to meet the household needs of two million average-sized families for a year--would be allocated by Wilson to areas with the most critical needs.

While the concept sounds simple, the repercussions of diverting large amounts of water from the privileged to the needy could be dramatic. Abruptly idling large amounts of acreage in the north to free up water for cities and Kern County agriculture, for example, could harm local economies that rely heavily on the farming industry, experts warn.

“When you stop farming, the ramifications of that trickle all the way down--to the seed man, the fertilizer people, the equipment dealers and of course the laborers,” said Troy Kellett, manager of the Richvale Irrigation District, a heavy rice-growing area in Butte County. “What happens to them? What happens if you lose that infrastructure . . . and find they’re not there when you try to farm again the next year?”

On the political front, a successful round of water marketing this year “could decide the case for it and lead us toward a new era” in statewide water distribution, predicted Richard Howitt, an agricultural economist at UC Davis.

If, however, the experiment falls badly short of its goals, “it will strengthen the hand of those who say we should build more dams,” Howitt said. “Either way, it will be . . . a watershed year.”

So far, the state’s water bank is painfully short on depositors. State officials said they were “in contact” with 200 potential sellers--both farmers and water districts--that control about 300,000 acre-feet of water. But little more than 20,000 acre-feet of that amount, they conceded, has been locked up for deposit in the state’s drought account. (An acre-foot is about 325,800 gallons)

Other deals are only days away from conclusion. Inquiries by the state and the Metropolitan Water District, for example, are expected to secure up to 50,000 acre-feet of water for the bank from the Anderson-Cottonwood Irrigation District, near Red Bluff, by next week, a lawyer for the sellers said.

Efstratis said Conaway Ranch will fallow 3,000 acres of rice and sell up to 37,000 acre-feet of its allotment of Sacramento River water, with the bulk of that amount likely to flow into the state bank. Another large sale--of roughly 40,000 acre-feet--may be forthcoming from the Yuba County Water Agency, which has earned $15 million marketing its excess water to the state and the city of Napa over the last four years.

In this somewhat unusual deal, Yuba County farmers would sell their portion of water from the local reservoir and instead pump ground water to irrigate this year’s plantings. At current prices, they stand to make a profit of $95 an acre-foot from the water they sell and at the same time raise a crop, said Oroville lawyer Paul Minasian, whose firm represents 50 Northern California water districts.

Despite this flurry of activity, Minasian and others say that under the current water bank program, there is no way the state will reach its goal of pooling one million acre-feet. Indeed, some experts believe that only intervention by Wilson--through the invocation of his emergency powers--will produce a supply of water sufficient to meet the demand.

A large part of the problem, they say, relates to price.

The state is offering sellers $125 per acre-foot for their water, an amount determined as “appropriate” after discussions with rice farmers and buyers such as the MWD and the Kern County Water Agency, said Steve Macaulay, coordinator of the emergency drought bank. For the luckiest rice growers, who possess entitlements that provide them with water for as little as $3 per acre-foot, that amount might seem dazzlingly high.

But many farmers and water district managers say it is not enough to persuade them to park the tractor in the barn this year.

“That $125 sounds low to me,” said Bob Vice, president of the California Farm Bureau Federation. “If (the state) wants a response, they’re gonna have to get in the ballgame on price.”

Howitt, the UC Davis economist, agreed and said farmers deserve “a substantial risk premium” for opting to transfer their water. “It’s a gamble for them, and you have to give them a strong incentive to participate,” Howitt said.

Many growers are receiving juicier offers from agencies operating independently of the state bank. As a result, some farmers are either dealing with the independent buyers or just biding their time--betting that a growing appetite will gradually sweeten the deal for sellers.

“It’s very hard for (sellers) because they are torn between the prices offered by the independent agents and the desire to help the state with the pool,” said Jerome Gilbert, a consultant for Conaway Ranch and former executive officer of the State Water Resources Control Board. “Also, while growers know instinctively that the price will go up, they are faced with making planting decisions right now.”

Macaulay said the state, in an effort to discourage “holdouts,” has agreed to put an “escalator clause” in its contracts, ensuring that those who sign up today will be compensated if the price of water goes up tomorrow.

As for competition from outside buyers offering more, Macaulay said the state has certain “advantages” that will ultimately attract sellers. For starters, the state controls the plumbing system needed to move the water from point A to point B. “I think the governor put it this way, ‘We’ve got ‘em by the aqueduct,’ ” Macaulay said.

Also, deals processed through the state bank are likely to receive quick and favorable approval from the state Water Resources Control Board, which must sign off on all water transfers. “There is a greater reliability (in doing business) with us. It’s just about one-stop shopping,” Macaulay said.

Such advantages, however, may not be enough to steer sellers into the state’s fold, experts say. Unless response perks up, state officials concede that their price may have to be increased.

Many farmers, particularly those in economically stressed regions such as Butte County, say it should increase a lot--to a sum large enough to compensate the string of businesses at risk if crops aren’t planted this year. Minasian estimated that amount at between $300 and $400 an acre-foot, and said the money should be collected by the local water districts and allocated to all of those affected by the transaction.

“The state has to realize that people really aren’t interested in idling ground and just decimating the economic chain up here,” Minasian said. “It’s just not going to happen.”

Some growers say privately that they are eager to market their water, but are under intense local pressure not to. Only action by Wilson, they say, could create a political climate in which selling water would become palatable in their tightknit farm communities.

But aside from the question of price, many farmers are just plain wary of relinquishing a commodity so fundamental to their way of life. Gathering at coffee shops, feed stores and in parking lots after church, growers normally concerned with the price of rice or the loss of a good herbicide man are now confronting more troubling issues:

Would selling water threaten my participation in federal crop subsidy programs, or perhaps jeopardize my contract with the tomato cannery? Would lending a hand this year encourage buyers to return for water again and again? If we don’t cooperate, will we appear miserly and obstinate to critics already bent on driving the water-gulping, government-subsidized rice industry out of California?

And suppose we refuse to sell, would a fed-up and frustrated governor then simply come in and seize our water?

Opinions vary, but one thing seems clear: A lot of farmers wish the whole dilemma would just go away.

“I don’t think there’s a single farmer here who thinks he’s gonna cut a fat hog,” said Dick Marshall, manager of a water reclamation district serving growers of tomatoes, alfalfa, sugar beets and wine grapes in Clarksburg. “It’s a heavy thing to contemplate, and I think most of us are thinking, ‘Gee, what seemed like a simple proposition really isn’t so simple at all.’ ”