Why is California a successful agricultural state for investors?
California is an economic giant. The state accounts for nearly 15% of U.S. gross domestic product, and California is the unquestioned global capital of technology and entertainment. But there’s more to California than Silicon Valley and Hollywood. California also leads the U.S. in agricultural output – and by a wide margin. By most estimates, California’s agricultural output is about $50 billion a year, well ahead of the No. 2 state, Iowa. Read on for more about what makes California farmland attractive to investors.
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Why is California a good place for agricultural investment?
A Mediterranean climate combined with the state’s rich soil make California unique among U.S. agricultural producers. Mild winter temperatures allow permanent crops (as opposed to row crops like corn, wheat and soybeans) to thrive in California. The result is an amazingly diverse farming economy that produces 400 cash crops. By contrast, Iowa is the nation’s No. 2 farm state, but its agricultural sector is dominated by corn, hogs and soybeans. California’s variety of crops is a boon for investors.
As an investor in California farmland, you can build a portfolio that includes a number of different types of commodities. This allows you to manage risk and to smooth out returns, which can follow boom-and-bust patterns if you rely on the fortunes of just one crop.
Of course, soil and climate are crucial to a thriving agricultural economy, but they’re only part of the puzzle. Water is an important input. While California doesn’t receive abundant rainfall, the state’s farmers do benefit from a system of dams, aqueducts, canals, irrigation districts, 12 major reservoirs and underground water banking. Labor also is an important piece of farming success – someone needs to harvest the crops. California has a deep pool of farm labor, thanks in part to its proximity to Mexico.
What’s more, California’s agricultural economy is kept afloat in part by an abundance of support services -- agronomists, farm managers, equipment rentals, chemical companies, cropdusters and other specialists are readily available in a state with a thriving agricultural economy.
And once the crop has been grown and harvested, there’s no shortage of consumers a short drive away. With a population of 39 million, California is home to more than 10% of the U.S. population. Los Angeles County alone has more than 10 million residents, making it bigger than most states. Californians are more affluent than the U.S. population – the state’s median household income is 20% higher than the national average, according to the U.S. Census Bureau.
That means California’s farmers are surrounded by a ready market for their produce. For products that are exported out of California, the state has a robust network of seaports, rail lines, trucking hubs and airfreight. The Port of Los Angeles is one of the world’s busiest seaports and an entryway for many goods coming to the U.S. from China. That means California farmers are close to a logistics network that can carry their products to other states in the U.S. or to Asia.
California’s agricultural sector also benefits from its position as a producer of high-value crops aimed at affluent consumers who can sustain price increases. Farmers in the Great Plains focus on corn, wheat and soybeans, products that are mostly commoditized and that also can be grown in other parts of the world.
California farmers, by contrast, raise specialty products – such as almonds, pistachios and avocados – and organic commodities that command a price premium at retail. In addition, California’s supply of irrigated land isn’t expanding, so it seems unlikely that land values would fall victim to any sort of sustained downturn.
What percentage of the California economy is attributed to agriculture?
California’s agriculture sector is the largest in the U.S., but it’s mainly an afterthought in an overall economy driven by technology, real estate, entertainment, transportation and other sectors. California’s state gross domestic product was $3.4 trillion in 2021, according to the U.S. Bureau of Economic Analysis. Agriculture was less than 2% of all economic output in California. (By contrast, Iowa’s ag sector accounts for more than 10% of that state’s GDP.)
What percentage of the US’ fruits and vegetables are grown in California?
If the Midwest and Great Plains are America’s corn belt and bread basket, California is the country’s capital of fruits and vegetables. Most of America’s lettuce, strawberries and broccoli are grown in California. Here are products where California produces more than 90% of the nation’s output, according to the USDA:
|Plums and prunes||100%|
Why is California a good place for agriculture?
Along with fertile soil, California boasts a Mediterranean climate that lets farmers produce 400 agricultural commodities, more than any other place in the U.S. Mediterranean climates are hot and dry in the summer and get most of their rain in winter. Just a handful of regions worldwide have Mediterranean climates, and they cover less than 3% of the planet's land mass.
These regions are conducive to highly productive farming and the cultivation of a range of crop types. In the U.S., California’s Central Valley is the only place with a combination of rich soil, a Mediterranean climate and the agricultural infrastructure necessary to sustain a major farming economy. About 9 million irrigated acres exist in California, positioning the state as the globe’s prime spot for investing in high-yielding permanent crops.
History of California agriculture
California’s ag industry is more than a century old. Between 1890 and 1914, the California farm economy shifted from large-scale ranching and grain-growing operations to smaller-scale, intensive fruit cultivation, according to a history published by the Giannini Foundation of Agricultural Economics at the University of California. By 1910, California had emerged as a major producer of grapes, citrus and deciduous fruits. As California’s farm economy emerged, support services such as canners, packers and providers of food machinery and transportation services kept pace.
For a time, California was a major producer of cotton. California’s acreage in cotton ranked 14th of 15 cotton-producing states in 1919; by 1959 it ranked only behind Texas. Several factors distinguished California’s cotton industry from other regions. First, cotton yields were typically more than double the national average. High yields resulted from the favorable climate, rich soils, controlled application of irrigation water, use of the best agricultural practices and fertilizer.
Second, the scale and structure of cotton farms was remarkably different in California. From the mid-1920s through the 1950s, the acreage of a California cotton farm was about fve times that of farms in the Deep South. However, after 1980, California farmers moved away from cotton – water shortages and pests pushed producers to other crops.
What makes California agriculture unique?
The history of cotton in California illustrates a truth about California farmers: They’re unusually adaptable. The ag industry has proven adept at moving toward market opportunities. What’s more, California has one of the world’s few Mediterranean climates, but a lack of rainfall is a constant challenge. Central Valley farmers rely on an aquifer, essentially an underground lake. Through a series of pumps and wells, the water is extracted and used for irrigation. California is unusual for the type and variety of crops it grows – many simply aren’t grown anywhere else in the United States.
Why is the Central Valley good for farming?
California’s agricultural sector is concentrated in the fertile Central Valley, which is bordered by 1,000 miles of nearly continuous mountain ranges. Eons of erosion from the adjoining mountains deposited rich sediment to create deep topsoil and prime farmland. Geological forces, in other words, have created some of the most fertile and productive soils in the world. The region extends from the southern Central Valley and Kern County north to Redding in the Sacramento Valley.
It’s a large enough expanse that 20,000 square miles of farmland are cultivated in the Central Valley. In addition to the Central Valley’s rich soil, the region also boasts groundwater wells and an extensive aquifer. There’s also an elaborate surface water system that has been developed since the mid-19th century.
The Sierra Nevada mountains on the east side of the valley get snowfall during the winter, which helps to replenish the reservoirs. The snowpack percolates into the underground water and replenishes the aquifer. Summer temperatures in the are conducive to growing hundreds of crops.
Snow is important to California’s agricultural sector because snowpack acts like a water bank, storing water high in the mountains until it melts in spring and summer to replenish water supplies. In years of little snowfall, some land is forced to go fallow.
California agriculture facts
In 2020, farms and ranches in California reported $49.1 billion in cash receipts for their output, the California Department of Food and Agriculture said. That marked a 3.3% decline from 2019. The state’s agriculture exports totaled $21.7 billion in 2019, an increase of 3.4% from 2018, according to the University of California, Davis, Agricultural Issues Center.
Top commodities for export included almonds, pistachios, dairy and dairy products, wine and walnuts. California farmers’ sales of organic products topped $10.4 billion in 2019, an increase of 3.5% year over year. Organic production encompasses more than 2.5 million acres in the state. California is the only state with a USDA National Organic Program.
In 2019, 69,900 farms operated in California, up 0.7% from 2018, according to the latest available statistics from the California Department of Food and Agriculture. Nearly 29% of California farms generated commodity sales greater than $100,000, above the national average of 18.5%.
The amount of land devoted to farming and ranching in California was 24.3 million acres in 2019, the same as in 2018. The average farm size was 348 acres in 2019, down slightly from the 2018 average farm size and below the national average of 444 acres. California is the nation’s largest producer of oranges, edging out Florida on that front, according to USDA data.
Which crops are grown in California?
According to the California Department of Food and Agriculture, the state’s growers produce more than 400 agricultural commodities. These were the state’s top 10 crops by value in 2020:
- Dairy Products, Milk — $7.47 billion
- Almonds — $5.62 billion
- Grapes — $4.48 billion
- Pistachios — $2.87 billion
- Cattle and Calves — $2.74 billion
- Lettuce — $2.28 billion
- Strawberries — $1.99 billion
- Tomatoes — $1.20 billion
- Flowers — $967 million
- Walnuts — $958 million
Of course, that’s just a partial list. California’s farms produce rice, avocados, spinach, squash, apricots, cherries, oranges and lemons, among other things. And the state’s largest cash crop – cannabis – doesn’t even factor on the official list. While California has legalized marijuana, cannabis remains a challenging area for investors, given the continuing federal prohibition on marijuana.
Meanwhile, California farmers mostly stay clear of the types of products grown in the Great Plains. While corn, soybeans, wheat, barley, sorghum and hogs are major commodities for states such as Iowa, Minnesota, Nebraska and Kansas, California farmers compete sparingly with farmers raising those crops.
Is California the largest agricultural state?
Yes, California is the largest producer of agricultural commodities in the U.S., and no other state comes close. The top five states by cash receipts, according to a USDA Economic Service ranking released in 2020:
- California: $50.1 billion
- Iowa: $27.5 billion
- Nebraska: $21.6 billion
- Texas: $21.1 billion
- Minnesota: $16.9 billion
Because that ranking is produced by the federal government, it excludes cannabis, a cash crop that would extend California’s overall lead even further.
Does California produce the most food in the USA?
This is a bit of a trick question. Yes, California is the nation’s biggest producer of a number of specialty products. The Golden State produces all of the nation’s almonds, pistachios, walnuts, garlic, celery and plums and prunes, according to the USDA. Similarly, nectarines and olives either come from California or from overseas. California generates more than 90% of the nation’s avocados, tangerines, grapes, carrots and lemons, the USDA reports. In terms of bread-basket commodities, however, California barely rates. The state produces just 0.1% of the nation’s corn crop, 0.1% of all hogs raised in the U.S. and 0.4% of the wheat output.
California is a massive agriculture state, so if you’re investing in farmland, the Golden State definitely needs to be on your radar. However, you also should understand that California’s farm sector is distinct from the agricultural economy of much of the rest of the U.S. California farmers primarily grow vegetables, fruits and nuts.