In this episode of “Priceless,” amid an historic megadrought, staff writers Chloe Sorvino and Michela Tindera explain how Forbes determines the value of a billionaire-owned water bank.
Read the episode transcript here.
SOUNDBITE OF ARCHIVAL COMMERCIAL, STEPHEN COLBERT: Hello, America. The folks at Wonderful Pistachios have asked me to help sell their product.
MICHELA TINDERA: So a few years ago, Stephen Colbert made this commercial.
COLBERT: But come on. They’re wonderful. I’m wonderful. They’ll sell themselves.
TINDERA: He’s sitting at sort of a prestigious-looking wooden desk. He’s looking his usual dapper self, dressed in a suit and his glasses, and in front of him, sitting there is one bag and one bowl of pistachios.
CHLOE SORVINO: So it takes about one gallon of water to grow one of those pistachios sitting in that bag on Colbert’s desk.
TINDERA: You mean one bag of pistachios?
SORVINO: No, no. One nut.
TINDERA: I’m sorry. What?
COLBERT: Pistachio! Pistachio! Wait for it. Pistachio.
SORVINO: Yep, so an eight-ounce bag has about 170 nuts. That’s about 170 gallons of water. And the Wonderful Company grows not only pistachios, but also almonds, lemons, limes, mandarins and pomegranates. And that means they’re using an estimated 150 billion gallons a year, or two-thirds of that on nuts.
TINDERA: I’m your host Michela Tindera, and this is Priceless. In this episode, we’re headed West to the epicenter of one of the most productive farming regions in the world—California’s Central Valley—where the area is in the throes of a megadrought that has been drying up wells and damaging crops across the western United States.
It’s there in the Central Valley, where a billionaire couple own a majority stake in one of California’s largest water storage facilities. In a time and place where water and reliable access to it are paramount, it’s an asset that if sold, could be one of the hottest auction items of the next decade. We estimate that it could be worth as much as $3 billion and counting. We’re going to explain how we got to that number, and how as climate change’s effects intensify that figure is likely to only go up.
To help us with this story. I’m joined by Chloe Sorvino. She leads Forbes food and agriculture coverage and started reporting on this back in 2014. Hi, Chloe.
SORVINO: Hi. Thanks for having me.
TINDERA: So, the owners of the Wonderful Company are a married, billionaire couple named Stewart and Lynda Resnick. And they’ve held a spot on our Forbes 400 list of wealthiest Americans for the last decade. Now you may not know them by their names, but you’ve certainly seen the brands of their Wonderful Company in the grocery store and on television.
SOUNDBITE OF ARCHIVAL COMMERCIAL: Wonderful Halos: Sweet, seedless, easy peel… Wonderful Pistachios: Get crackin’… POM Wonderful: The antioxidant superpower… Fiji Water is a gift from nature to us…
SORVINO: By their own estimates, half of American households buy their products. Their company brings in about $5 billion in annual revenue. Based on that, we estimate that Stewart and Lynda Resnick have a net worth of $8 billion today.
TINDERA: Lynda Resnick, who’s been called a “marketing genius,” grew up in Beverly Hills, the daughter of a Hollywood film producer. She dropped out of college and started her own ad agency at 19. And Stewart, who grew up in New Jersey, moved out to California to attend UCLA.
SORVINO: He met Lynda when he came to her as a client in 1970. He needed help with advertising for his janitorial service.
TINDERA: Within the decade they were married.
SORVINO: And in 1978 Stewart bought his first parcel of farmland in California as a hedge against inflation.
TINDERA: And so began their agricultural empire. Much of their ability to grow that empire to where it is today has hinged on their access to water, and lots of it. Before we get into how the Resnicks get their water, it’s important to understand the unique water system that their business operates in in California.
SORVINO: Yeah, California has one of the most sophisticated and complex water delivery systems in the world.
TINDERA: Exactly. California captures about three-quarters of its snow and rain in watersheds located north of Sacramento. Meanwhile, about 80% of the demand for water comes from the bottom two-thirds of the state. To accommodate the uneven supply and demand the government got involved. And ultimately, a number of delivery systems were built, including the State Water Project and the Central Valley Project. Each one, through an intricate series of canals, dams and reservoirs transports water hundreds of miles down the state. It is pretty remarkable. Those changes to the environment have brought about their own new challenges within local ecosystems. But without this type of infrastructure, farming in the Valley couldn’t be what it is today.
SORVINO: Farmers need access to water to reliably irrigate their crops. Farmers in California either have land with water that’s pumped from the ground, or they get it by diverting it through a stream. California is a really dry and hot state. It’s drought prone, and that’s where some technology comes in. In the Central Valley drip irrigation systems are common. They often use sensors and deliver water directly to the roots in the ground. But when there’s a drought, the state has trouble delivering as much as promised. If a farmer’s groundwater dries up, or they can’t get enough from the state, they pretty much have to buy from a neighbor or a water district selling it privately.
In 1988, California was one year into a six-year-long drought when the California Department of Water Resources bought land in Kern County for $31 million from the conglomerate Tenneco West. Over the next few years, the department spent millions more on additional construction, environmental and water quality studies.
TINDERA: During much of that time, the drought continued on.
SORVINO: In 1994, some of Stewart Resnick’s most trusted advisors met with several leaders in the Southern California water districts and other state water officials. And this is exactly the setting where they brokered a deal known as the Monterey Agreement.
That agreement set up a public-private partnership where the state handed over that public land and underground aquifer to a group of five public water districts and a company set up by the Resnicks called Westside Mutual Water. The new owners agreed to give up their state water contracts, and then paid to install a six-mile-long canal and 85 wells at a cost of $50 million. And more than two decades later, it still gives them nearly unrivaled access to water storage.
TINDERA: Some critics have called the meetings that took place in Monterey Bay, secret and the Resnicks’ ownership has been challenged in court numerous times. But as Chloe reported in 2015, the Wonderful Company denies the meetings were done clandestinely and has alleged that those who say so have an, “ax to grind.”
STEWART RESNICK: To be candid with you, maybe this is a little bit um, maybe I’m being, you know, a little Pollyanna, but…
TINDERA: That’s Stewart Resnick from an interview Chloe did with him back in 2015.
RESNICK: We established this water bank 20 years ago, and we did everything by the rules. And it’s kind of like I was telling Steve earlier, it’s like when I first came to California 60 years ago, I should have bought property on Rodeo Drive. You know, a lot of other people did, I didn’t. Now with Rodeo Drive— now I’d like to go back and buy the property on Rodeo Drive for the same price it was 60 years ago. Okay. I can’t do that. Well, the people that had opportunities to buy the water bank just like we did, they didn’t think it was worthwhile at that point in time. Now, they think it’s worthwhile. So, 20 years ago, we did it. We’ve been sued for 20 years, and we’ve won every lawsuit.
CHAR MILLER: You know, one of the things about the Resnicks is that they’re actually following a well-beaten path since the 19th century…
TINDERA: That’s Char Miller. He is the W.M. Keck Professor of Environmental Analysis and History at Pomona College in Claremont, California.
MILLER: …Of those who have tremendous monetary assets, who have tried and often succeeded, although some have failed spectacularly, to corner the market effectively of water and understood, again in the 19th century, that land tied to water is the most profitable investment you could possibly make. So, if you go back in time, the Resnicks look like everybody else, except they’re just doing it in a more spectacular fashion in the 21st century because they effectively control the largest groundwater water bank, certainly in California, and I suspect in the United States as well.
TINDERA: Still, it’s worth noting that public-private partnerships of this kind are quite rare in the United States today. According to a 2020 report from the Congressional Budget Office, public-private partnerships that provide transportation and water infrastructure have represented just 1% to 3% of such projects since the early 1990s.
From above, the Kern Water Bank looks sort of like a gigantic, shallow pond. It spans some 20,000 acres, which if you’re unfamiliar with what acreage looks like, it’s roughly the size of the entire island of Manhattan. And underground, it has the capacity to store some 1.5 million acre-feet of water.
SORVINO: An acre-foot is just the weird measurement in the world of water that is used as the most basic measurement, so it means it’s the amount of water that it takes to cover one acre of land with one foot of water.
TINDERA: One acre-foot is the equivalent of 326,000 gallons of water. And so, 1.5 million acre-feet is about 500 billion gallons of water. These are really big numbers to try to picture. So let’s think about it this way: Two acre-feet would fill up an Olympic-sized swimming pool. So that means that this water bank’s capacity is the equivalent of 750,000 Olympic-sized swimming pools. Well, that’s still sort of hard to picture. So let’s think about it another way: The Jacqueline Kennedy Onassis reservoir in New York City’s Central Park holds about 1 billion gallons of water. So the Kern Water Bank holds the equivalent of some 500 Central Park reservoirs. And thinking about it one other way: The city of San Francisco uses about 70 billion gallons annually, so the Kern Water Bank can hold roughly a decade’s worth of water for the entire city.
SORVINO: It works like a bank. In the wet years they fill it up as much as possible, while of course also still watering their crops with whatever they can. And in the dry years when there’s not a lot of access, they cash in on what they previously stored.
LOIS HENRY: Where the Kern Water Bank is, is where the Kern River would peter out.
TINDERA: That’s Lois Henry, she’s the CEO and editor-in-chief of nonprofit newsroom SJV Water.
HENRY: So it is naturally an excellent groundwater recharge area because over the millennia, it was built up with sand and gravel and all that good stuff rather than clay, which is hard to percolate water through. So it is naturally the best place to recharge water.
SORVINO: Lois is the expert when it comes to water in California. The Central Valley is the place where water impacts everyday life. They’ve been underserved for years, and Lois knows that so deeply. She’s one of the few journalists who has kept an eye on these crucial issues for years.
HENRY: Kern Groundwater Bank continues to be, I think, the absolute jewel of banking and recharge in California—bar none. And that means it’s the best in the world, because if you’re the best in California, you’re the best in the world.
CLIP FROM ‘SUCCESSION’: I have five farms. And underneath all my farms runs a big, giant aquifer that’s like an underground lake. Woah, That’s so cool. And I have pumping rights. That means I get to take the water. That’s so cool. And it’s very important because someday water is gonna be more precious than gold and people are going to kill each other to try get that water. Oh, hey, hey, Con. Don’t listen to him. Right, right sorry—but I’m gonna have the water. And I’ll share it with you.
TINDERA: That’s the character Connor Roy from the very first episode of the hit HBO series “Succession.” If you haven’t seen it, it’s about the fictitious billionaire Roy family whose fortune stems from a massive media and entertainment empire. They have all the trappings of a billionaire family. The yachts, the helicopters, the countryside estates. So, of course, it’s no surprise that one of the Roy family members might also hold a stake in something with as much potential for value as water.
HENRY: The Kern Groundwater Bank is a huge, huge asset.
TINDERA: That’s Lois again.
HENRY: I mean, it’s almost incalculable to understand how valuable it is.
TINDERA: But in fact, that’s exactly what Chloe set out to determine. How much is the Resnicks’ stake in Kern worth?
SORVINO: They were originally super excited about having me out. At least that’s what I was told.
TINDERA: Chloe first started looking into the value of Kern Water Bank back in 2014. Then, the next year when she was reporting a Forbes magazine feature on the couple, and California was in the midst of its previous drought, she made a plan that summer to go out to California to see the Wonderful Company’s farming operation in person.
SORVINO: I was also told that I would get to have a private plane ride from L.A. to the Central Valley to tour their farms, their processing plants and have the full shebang. But you know, as I started digging more and more into their water rights, all the water valuations and how they really control so much water in California, and as my questions kept on coming, eventually they pulled all of that back.
TINDERA: So instead, she took a different approach.
SORVINO: I convinced a friend of mine who works at Apple to drive me about two-and-a-half hours from L.A. into the Central Valley. A lot of the fields are visible from public streets and the main highway. So I saw a lot of the trees and orchards that way and spent a lot of time in some of the public parks and surrounding areas, which they fund. The drought was really raging. It was dry everywhere except for this super, super lush land, which was their orchards. There were literal tumbleweeds almost everywhere I could see. Even though if you got into the orchards, they were using a lot of drip irrigation. And so there would be grasses and lush areas right around the root systems of these trees.
TINDERA: That fall, back in 2015, in Chloe’s magazine feature, she reported that amid the drought that was happening then, the Resnicks had an estimated 57% stake in the Kern Bank that was worth at least $250 million. So how did she come up with that estimate?
SORVINO: Owning water, or access to water storage is a pretty weird thing.
TINDERA: And experts like Lois have called it “incalculable” or “priceless.”
SORVINO: But I really wanted to try to put a price tag on it because theoretically, if the Resnicks decided to sell their stake in the water bank, it could be one of the hottest auction items of the next decade.
MILLER: And my God. The bidding war would be intense.
TINDERA: That’s Char Miller again.
MILLER: They hold all the cards, or 57% of them anyway. And that gives them an extraordinary hold over a really precious, valuable resource in a place that has been profoundly and importantly, one of the bread baskets of the United States—or at least the fruit basket and nut basket of the United States. That, it seems to me, would bring in not just outside capital from California, but international capital. Because to get that 57%, or some version of it in a climate-charged world, is frankly, priceless.
SORVINO: To determine the water bank’s potential value I looked at two figures: the bank’s capacity and the price that water is selling for.
TINDERA: So we already know that the Kern Water Bank reports its total capacity at 1.5 million acre-feet, or about 500 billion gallons of water. But what about the price of water?
SORVINO: Water prices aren’t really listed anywhere like a price tag on an item at a store. They also really vary based on location, time of year and drought conditions.
HENRY: I’ve been asking around about prices, and people are getting really kind of cagey about what they’re A. paying for water and B. what they’re trying to sell it for because now it’s getting really desperate.
TINDERA: Lois explained that if a private company or landowner is buying or selling water, sometimes she can find in her own reporting a paper trail left in the public record. We spoke with her over the summer, and she said this.
HENRY: You know, I can find out how much water was moved. But the actual monetary deal was made, landowner-to-landowner and that’s “private,” according to their attorney.
SORVINO: On the low end, during wet years especially, you can buy water for roughly $250 per acre-foot in Southern California. So at that market price, the potential value for the bank, at a capacity of 1.5 million acre-feet would be roughly $375 million.
TINDERA: And accounting for the Resnicks’ 57% ownership stake, their piece would be worth about $200 million. But obviously 2021 has not been a wet year in California. Back in May, Lois Henry reported for SJV Water that the price of water was trading from $425 per acre-foot up to $1,000 per acre-foot.
SORVINO: Based on an $1,000 per acre-foot price, that would put the total value of the bank at $1.5 billion.
TINDERA: Or the Resnicks’ stake would be worth about $850 million. And in the height of the summer’s heat, Chloe said that she heard prices could go for all the way up to $2,000 per acre-foot. That price would send the potential total value of the bank, if all the water was in it, all the way up to $3 billion. If the Resnicks were ever able to sell their stake in the bank at that price, they could net $1.7 billion.
SORVINO: And of course, with climate change, access to water storage like this is only going to get more and more important, and more and more valuable. I recently reported that precipitation in the Sierra Nevada Mountains, which Californians like the Resnicks rely on for water is expected to drop by 40% over the next century.
TINDERA: With that expected drop in precipitation, Char Miller believes our valuation of the water bank is quite conservative.
MILLER: And it’s conservative because of what we expect to happen, what is happening across the entire Southwest. But in this case in California equally—that the rest of this century is going to be more dry than wet. That means that water becomes more valuable, rather than less. And if you’re holding as the Resnicks are 57% of Kern Water Bank, and that’s the only thing we’re looking at here, that value in the future is astronomical. So, one would think that only going on current value tells us one set of data, gives us one sort of calculation. But I would argue that over the next 10 to 15 years that calculation will in fact be much, much higher.
TINDERA: Fields are left fallow. Orchards are removed. Number of fires and area burned are extensive. Fish rescue and relocation begins. Pine beetle infestation occurs. Survival of native plants and animals is low. Wildlife death is widespread. Algae blooms appear. This may sound like something out of a post-apocalyptic novel, but actually, it’s the description from the U.S. Drought Monitor of the type of drought that nearly one-half of California experienced this year. And of course, this type of drought means if you need water, you’ll likely have to pay dearly for it.
Despite the Wonderful Company’s access to this water bank and the implementation of water-saving irrigation techniques, Chloe reported in 2015 that amid that drought, the Wonderful Company expected their own production of almond trees to drop 20% and pistachios to drop 60% that year. How could this be possible? How could an agricultural business have access to a water source that has the capacity to fulfill the city of San Francisco’s water needs for several years and not have enough for its own orchards?
According to the Kern Water Bank Authority, the water bank is for, “the benefit of its members and their constituents including more than 400 farmers and tens of thousands of residents” in Bakersfield and Kern County. In September, a representative from the Kern Water Bank Authority told us that the water bank was about two-thirds of the way full of water. However, the water bank has an annual pumping limit of 240,000 acre-feet per year, or about 78 billion gallons.
SORVINO: That limit is in place for a number of ecological reasons. But mainly it’s because if too much water is pumped out too quickly, the ground literally starts to sink.
TINDERA: That’s known as a process called subsidence. It also means that all of the Kern Bank’s users can only remove about 15% of the bank’s capacity every year. But as we mentioned at the beginning of the episode, we estimated that Wonderful’s agricultural operation uses about 150 billion gallons of water per year. A number that Wonderful says is high but didn’t elaborate more.
SORVINO: That’s a severe limitation on what Stewart probably hoped decades ago would have been unfettered access to water.
While the Kern Water Bank plays an integral role in the Wonderful Company’s ability to store water, most of the company’s water comes from long-term contracts and other water from land rights they’ve had from farms they own. Some of that may get pumped and stored in the Kern Water Bank. Around 9% of the total water used by the Wonderful Company is bought out on the open market. While that’s not a huge amount of the water that Wonderful uses, the company can outspend pretty much every other farmer in the region and has the ability to influence water prices.
TINDERA: A spokesperson for the Wonderful Company told Forbes in an email, “Like all farmers, we occasionally need to purchase water for our crops. However, we prioritize water rights when purchasing farmland, thus most of our supply is not purchased on the water market. Based on this, we do not believe we have enough purchasing power to impact water prices.”
While Stewart and Lynda Resnick are some of the most dominant players in Western water, they are hardly the only billionaires interested in water and water rights. In the last year, Bill Gates, who is one of the largest landowners in the country, reportedly lost out in a bidding war between his investment firm and the Mormon Church to buy up thousands of acres of land in Washington state that included water rights.
SORVINO: The water bank has been a critical asset for Wonderful over the decades. But climate change makes Stewart and Lynda Resnick, majority ownership of key water conservation infrastructure, even more contentious.
TINDERA: At this point, who else might be able to control this kind of asset other than a billionaire?
Thanks for listening to Priceless. This episode was reported by me, Michela Tindera, and Chloe Sorvino. It was co-produced by me and Jonathan Palmer, and additional research by Sue Radlauer.
Parts of this episode were adapted from Chloe Sorvino’s articles, “America’s Nuttiest Billionaire Couple: Amid Drought, Stewart And Lynda Resnick Are Richer Than Ever” and “Amid Drought, Billionaires Control A Critical California Water Bank.”
To read more about water issues in California, check out SJV Water.
Additional audio credits: The Wonderful Company, HBO