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Facing drought, Western states seek to deny groundwater to foreign companies

By Matt Vasilogambros, Stateline.org
Published: March 19, 2023, 6:00am

Just off an arid stretch of highway in western Arizona, a Saudi dairy company pumps unrestricted amounts of groundwater from underneath its fields, uses it to grow thousands of acres of alfalfa and ships the bales of hay overseas to feed cows more than 8,000 miles away.

Arizona officials now want to stop them.

As the American West battles its worst megadrought in more than 1,200 years, state elected officials throughout the region are rethinking how groundwater is used and who gets access to it — with some even targeting foreign-owned companies.

Republican and Democratic lawmakers in Arizona, California, Texas, Utah and Washington state are considering legislation that aims to protect their states’ water supplies by banning foreign companies from owning or leasing land. Elsewhere in the United States, state lawmakers have rushed to try to ban foreign companies, especially from China after the recent spy balloon saga, from owning land — primarily for national security reasons.

In Arizona, Republican-sponsored legislation seeking to ban companies from China, Cuba, Iran, North Korea, Russia, Saudi Arabia, Syria and Venezuela from leasing or owning land passed the state House with some Democratic votes. The state Senate is now considering the legislation.

During a hearing last month of the House Land, Agriculture and Rural Affairs Committee, Republican state Rep. Leo Biasiucci, the bill’s primary sponsor, said it was a “pretty simple bill” aimed at protecting “our water.”

“We want to make sure the water is not being pumped and used for reasons that are not benefiting us at all,” he said. “If we stop them from getting the land, they can’t pump the water, and that’s the goal. We want to stop that altogether.”

Democratic state Rep. Mariana Sandoval, who voted against the bill both in committee and on the House floor, said she agreed with the spirit of the bill but expressed doubt that it would actually protect water. The legislation would not affect existing leases or ownership, which Sandoval sees as a major omission.

“I think none of us want our groundwater pumped by out-of-state entities, whether they’re even American ones,” she said at the February committee hearing. “Water is important for us here in Arizona. The bill is missing that part. It’s not addressing the real issues on groundwater supplies being exploited by entities.”

The legislation does not target the United Arab Emirates, even though one of its companies, Al Dahra, also grows alfalfa in Arizona and ships it overseas.

An effort to ban “Chinese Communist Party” members from owning land in Arizona passed a state Senate committee last year but never received a floor vote. Fourteen states restrict foreign ownership of agricultural land, according to the National Agricultural Law Center — a list that is sure to grow during legislative sessions throughout the country.

While there is a desperate need to conserve water, several water and agriculture experts told Stateline the problem Western states face is less about foreign entities owning land and over-pumping wells, and more about the need for broader changes to groundwater management. Those experts also voiced concern that the bills tread into dangerous nationalism.

Rhett Larson, a professor of water law at Arizona State University, said he is not sure how legislation that bans foreign entities from owning farmland would help to conserve groundwater.

“If you’re really worried about groundwater, then it’s better to pass laws that manage groundwater,” he said.

The Saudi saga

In 2014, Fondomonte, a subsidiary of Saudi dairy giant Almarai, took over the lease of an existing alfalfa farm, spending around $50 million to build a high-powered well and upgrade the irrigation system.

Because the land is outside of an active management area, there are virtually no regulations or monitoring of groundwater pumping.

Fondomonte acquired around 10,000 acres from the state at a rate of $25 per acre, well below the market value. The company did not have to purchase the groundwater it pumps without limit, just the land above it. The deal has since caused an uproar in the state.

Democratic Attorney General Kris Mayes, who was just elected in November, called it a “sweet deal” and is investigating the agreement, which during her campaign she labeled the “Saudi water grab.”

“Water is a top topic in any regard, and when you talk about these leases that are egregious in many ways, that has risen to an area of concern,” said Richie Taylor, communications director for Mayes. “We can’t afford to do things like that anymore.”

While he declined to specify what actions Mayes may take, he said a historic lack of water regulations should be looked at more closely. He added that Mayes has not taken a position on the legislation making its way through the state legislature.

Rose Law Group, which represents Fondomonte Arizona, did not respond to a request for comment in time for publication.

The company also grows alfalfa in the Palo Verde Valley, a Southern California region that has stronger water rights than metropolitan areas around Los Angeles and San Diego.

Last year, the California legislature unanimously passed a ban on foreign governments purchasing or leasing agricultural land in the state. However, Democratic Gov. Gavin Newsom vetoed the bill, writing that the measure is beyond the purview of state departments and would create “new and arduous responsibilities.”

In Arizona, years of state inaction has frustrated residents who live in the communities where foreign-run farms operate, including La Paz County Supervisor Holly Irwin.

The deal the state gave the Saudis hurts the community, she said. Since a portion of money from leased land goes to local education in the county, any discount takes funding away from children’s schooling, she argued. And she claimed the company is overusing the state’s water supply.

“I have a big issue with foreign companies pumping our water and depleting our natural resources because they depleted theirs,” said Irwin, a Republican. “That’s not OK, whether it’s the Saudis, the Chinese, whomever. If you don’t start changing something, we’re not going to have water.”

Nationalism concerns

The Saudis have a long history with Arizona agriculture that led to the current situation, said Natalie Koch, a professor of political geography at Syracuse University, who authored the book “Arid Empire: The Entangled Fates of Arizona and Arabia.”

Before the country ever acquired land in the Southwest, Saudi Arabia received a delegation of Arizona farmers that the U.S. State Department sent in the 1940s to consult on agricultural practices. Around the same time, members of the Saudi royal family came to Arizona to tour its agricultural industry.

In the 1970s, the Saudi government invested heavily in subsidies trying to promote its domestic dairy production, which led to unsustainable agricultural and water use policies, Koch said. Several decades later, the Saudis essentially depleted their aquifers.

Knowing the country was running out of water, the Saudi government incentivized domestic dairy companies to purchase and lease land in countries that weren’t likely to ban grain exports, weren’t regularly disrupted by farmer protests and had favorable water regulations, including Argentina, Romania, Serbia and the U.S.

“The U.S. has always been promoting and setting up this entire thing,” Koch said. “It’s not like the Americans are passive in this. We have absolutely helped sow the seeds for that Saudi agricultural industry that has come back to us now.”

Foreign companies are working within an agricultural system in the American West that has long-standing problems with water management, said Alida Cantor, an assistant professor of geography at Portland State University. Farmers grow water-intensive crops, propped up by decades-old water rights, even as the region experiences the worst megadrought in a millennium, she noted.

She also pointed to a company from Minnesota that has drawn minimal pushback even though it owns farmland in Arizona, pumps its groundwater, grows alfalfa and sends it back to the Midwest. Discussions over use of limited groundwater should not be wrapped up in “racist, nationalist” arguments, she said.

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“If the problem is around exporting water-intensive crops grown in the desert or rethinking the way water rights allow that to happen, I think we need to have those conversations,” she said. “But pinning it on landowners from certain countries is not the right way to go.”

While concern about foreign ownership is “understandable,” it’s not the most pressing issue for state water supplies; more water storage and infrastructure fixes are needed, said Mike Wade, executive director of the California Farm Water Coalition. Foreign ownership bans also ignore the role that American agriculture plays on the global market, he added.

Indeed, alfalfa, which is what Fondomonte primarily grows in Arizona, is the “building block” of the state’s agricultural and food industry, said Phil Bashaw, chief executive officer of the Arizona Farm Bureau Federation, which has not taken a position on the legislation. Agricultural exports have been a “shining star” when it comes to trade relationships with foreign countries, he added.

“The fact that we are producing viable, usable commodities that’s wanted for export should be something we’re proud of,” he said. “The things that we grow in Arizona, we are typically growing them much more efficiently than anywhere in the world.”