California is becoming drier as the climate continues to grow warmer, and Harvard University’s endowment is hoping to profit from future water shortages in the Golden State.
A recent Wall Street Journal report delved into how the university’s $39 billion endowment was investing in buying up aquifers in dry parts of California that hold precious groundwater resources. For water investors, the goal of buying land containing access to groundwater is to be able to profit by growing food in water-rich areas and selling that food to dry areas at a higher price.
According to the Journal, Harvard could be doing that exact thing using a shell company called Brodiaea, Inc.
Brodiaea began purchasing land in 2012 at inflated prices in and around California’s Central Coast as a means of enticing owners to sell. Then, the firm began drilling groundwater wells and planting grapes on the land they bought and converted to vineyards. Brodiaea’s affiliation with Harvard didn’t become known until the Farmland Investor Newsletter mentioned that Harvard was acquiring rights to water using Brodiaea and other firms to make land purchases.
As the Wall Street Journal reported, Harvard’s bet on California droughts paid off:
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 fact that Harvard is spending its endowment on buying rights to water on land thousands of miles from its campus in Massachusetts has angered some local residents. San Luis Obispo county supervisor Debbie Arnold told the Journal that she fears Harvard will eventually “control our groundwater plans.”
Lindsey Pera, another county resident, told officials at a July 2013 meeting that Harvard vineyards were depleting water that residents depended on. And as the Journal reported, residential wells just 10 miles west of Harvard’s vineyards ran dry in July of 2013 — roughly a year after Harvard’s shell company started buying land and drilling for groundwater.
Just days before San Luis Obispo County administrators implemented an emergency moratorium on new agricultural groundwater drilling, Brodiaea filed for permits to drill for groundwater as deep as 1,200 feet, even though one well hit water at just over 100 feet deep. This allowed Harvard to keep withdrawing water from the aquifer even as droughts drove groundwater deeper into the earth. Havard’s vineyards are now worth in excess of $300 million — more than three times higher than they were valued just five years ago.
Another firm Harvard used for land purchases on water-rich land was SLO San Juan Road LLC, and in combination with Brodiaea, Harvard bought up thousands more acres of Central Coast farmland to pump groundwater and grow grapes for export. Local vineyard owner Cindy Steinbeck — whose family has grown grapes in the valley for roughly 50 years — accused the Ivy League school in a letter to the president of Harvard’s endowment of using the LLCs as a means of obfuscating the university’s role in buying up water rights.
She added that it didn’t make economic sense to buy land at inflated prices to simply grow grapes, and accused Harvard of instead buying rights to the water in order to capitalize on selling what would eventually become a precious natural resource. Harvard insisted its interest in the land was “purely agricultural in nature.”
Tom Cahill is a contributor for Grit Post who covers political and economic news. He lives in Bend, Oregon. Send him an email at tom DOT v DOT cahill AT gmail DOT com.