California is the most production agricultural state in the U.S. with an agriculture industry worth $35 billion. For three years California has had below-normal rainfall and is now in the grips of what could be considered the worst drought in 500 years. Although agricultural investments typically remain stable through extreme weather events, this drought exemplifies the need for agricultural portfolios to incorporate risk management principles into their investment processes. During the property acquisition process, the stability of the water supply should be a major focus of the due diligence process, taking into account factors such as historic rainfall, underground aquifers, availability of surface water from local, state, and federal districts, availability of banked water, riparian water rights, and the presence of buffer land with available water rights. Investors should consider obtaining land with multiple sources of water and properties that employ strategies such as drip and micro-sprinkler irrigation technologies, and the winter transfer of banked water to above-ground storage for easier availability during drought. To read more about risk management in the face of extreme weather:
To receive relevant news stories with summaries provided by GAI Research & Insight, subscribe to Global AgDevelopments, our free bi-weekly enhanced eNews service