The Great California Land Rush

Boom or Bust? 

By Victor Davis Hanson 

I have lived on the same farm for 59 years and seen at least three boom-and-bust farm cycles — one in the late 1960s, another in the early 1980s, and a third right now. I’ve witnessed raisins, for example, at $1,420 a ton 35 years ago, then $410 a ton, then $700 a ton — and now almost $2,000. The old wisdom insisted that almond acreage could never exceed 200,000 acres without a crash, that prices would never go over $1 pound to the farmer, that production could not go much over 3,000 lbs. per acre.

Now? There are now 800,000 plus acres of California almonds, prices near $3 a pound, and new varieties are creeping up to 4,000 lbs. per acre. Some almond orchards remind me of alien organisms: lousy soil, undersized trees, tiny roots — and loaded with nuts to the point that props are needed to keep the trees from toppling over, as agronomy keeps these artificial creations going with daily IV fusions of water and nutrients. It is almost as if anything on the tree that is not a nut is genetically superfluous.

When I began farming full-time in the cresting boom of 1980, vineyard or orchard went for almost $10,000 an acre. I saw it crash three years later and prices dip as low as $3,000 an acre for what was then called “Thompson Worthless” vineyards. By the 1990s, prices were back up to between $7,000 and $10,000 per acre — only to go back down too $5,000 by 2003. And now? Bare land can go for $15,000 an acre and up; a productive vineyard or nut orchard sells for $25,000 to $30,000. “They” say $35,000 an acre is on the horizon.

I am getting old and remain a cynic (see Fields Without Dreams ^[1] and Letters From an American Farmer ^[2]). All the same, I think eventually the latest boom will likewise bust. (Most of the “rich” I know out here made their money by emulating J.Paul Getty’s de facto rule of “buy low, sell high — everything can be sold or bought, all the time.”

Most of my friends in these parts disagree about a looming bust. Things are “different” now, they swear. Why? Human nature has been altered? The U.S. dollar has never been more stable? The debt is small? Governance is unusually competent? There will be plenty of water — new dams; the sneaky little smelt will get his comeuppance; salmon won’t get their water from mountains to the sea?

Booming for 100 Years?

But I digress, so let us count their reasons for optimism: 

1) 400 million new empowered consumers in India and China enjoy a fig, some almonds, or a raisin or two as relish for their California rice, wheat, or beef, and will buy all they can of the state’s staples and specialty crops from our Pacific ports. Now both countries possess both the tastes and the wherewithal to pay for our farm exports.

2) America is no longer a nation of 250 million, but nearing 320 million souls. Seventy-million extra mouths translate into an entirely new consumer class the size of France right here in the U.S., prompting new domestic demand as never before.

3) Land is finite, or rather, shrinking. Suburbanization, shortages of water, higher costs — all that and more mean that we are not going to see all that much further increases in production. New hybrids, better technique, drip irrigation, novel fertilizers, intensification of farmland, and more are reaching their theoretical limits. Existing land is more likely to be encroached upon than new acreage opened up for farming.

The optimists believe that at last the supply/demand ratio has tipped their way. My late mother, dying from a brain tumor in the bust of the mid-1980s, was desperately trying to keep our money-losing farm. She used to plead with me: “Some day, land will be precious. Please, please don’t sell.” Maybe she was right about “some day,” but much of her efforts went for naught, and the land was sold under duress in the bust, for about one-sixth of what that land is worth now. The owners of my siblings’ land do not live nearby, but they are gracious people who magnanimously allow me to venture beyond my own 45-acre remnant and in the evenings walk the contours of the original farm of my ancestors. But now land is for money, money is for land — nothing more, nothing less.

4) Another reason for the boomers’ optimism: everything but land and food is bad and almost everywhere but the U.S. things are even worse off. There is no interest on passbook savings. Urban real estate is dicey after 2008 ^[3]. When — not if — the soaring stock market dives is the current betting. Land and the profits it provides are seen as good investments. The EU and its agricultural subsidies are in shambles. California’s competitors — mostly Europe’s Mediterranean agriculture — are bankrupt. India and China need food for their new yuppies. California agriculture is real: wonderful land, superb weather and climate, innovative farmers, and adequate water — for now.

5) Most importantly, this boom is said to be profit-based. The others in the past were more inflation- and speculation-driven, as hedges for inflation or brief aberrant commodity price rises. This land rush is supposedly based on bottom-line arithmetic. If almond orchards are high at $25,000 an acre, so are almond profits: 3,700 pounds per acre at $3 dollars a pound leads to a theoretical (everything in farming is theoretical) gross of over $11,000 an acre, and perhaps $7,000-$8,000 an acre net profit — or a 30% percent return on the investment the first year. (One local just bragged to me he could pay off his land in four years.) In the old days, booming land prices were never justified by such highly spiked commodity prices. I think the fast talkers are drunk who say “buy now at $25,000 an acre before it goes to $40,000.” But then I confess I thought they were inebriated two years ago when they were buying orchard at $12,000 an acre.

I want to be mistaken and believe the boom will only grow, but I have seen too many busts destroy too many lives of my friends and family. Still, whatever the truth, it is fascinating to watch, this mad scramble to make lots of money off the land — shysters, crooks, the audacious, the capable, the noble, the cynical, they are all out here involved in the way of the forty-niners. The old sandy hill with the half-dead vineyard down the road? No longer is it marginal land that is either poorly planted or sandy. So $6,000 an acre is poured into it — and, presto, out goes the pathetic vineyard and in comes hybrid almonds on computerized drip lines, overseen by corporate agribusiness experts. Who now cares about its sand, unleveled ground, and bad location? For investment purposes it is now “a California almond orchard” and that is all ye need to know.

The Homesteaders?

And how about the old agrarian ideal? Is the new boom enriching hundreds of thousands of families at last with money to spruce up their old Victorian clapboard houses on 100 acre ancestral plots?

Nope. They are all dead, buried, forgotten. While the successful corporate families are trying to expand, bigger money is also coming from the outside of agriculture: 401K investment funds, pension portfolios, insurance profits, safe havens for imperiled euros, or smart investments for coastal professionals tired of rising taxes and zero interest. The result is that if in 1970 I knew every family in a two-mile radius, I don’t know more than 10% of the landowners in my nearest vicinity now. Heck, I don’t even know if there are any landowners, rather than shareholders of some investment portfolios.

Stranger still, the land looks better, not worse, at least in the daylight. A corporate-type lectured me not long ago for writing an essay on the “Two Californias”: 

(if I could paraphrase him: “Your problem is that you chose to spend the night on your land. That’s dumb to hang out with copper-wire thieves, gang bangers, and the 18% unemployed. You’re supposed to live in Fresno, visit your land in the daytime hours, and leave the problems after dark to your foreman and the insurance company.”

Sort of like Hippo Regius ^[4] and the Vandals ^[5] circa A.D. 430?

Out with the Old, in with the New

Central California is also a magnet for very rich Punjabis. Their three-story gated castles of 6,000 square feet are suddenly commonplace. For every copper-wire thief, there is an immigrant agribusiness man who smiles and says: “No problem. I just got more barbed wire, more video cameras, more lights” — such an impressive confidence so characteristic of the immigrants who have always energized America.

The Sikh community arrives with capital, English, and education — and wishes to become even richer, better spoken, more highly educated, and more successful. In this nexus, land is not just a wise investment, but immediate proof of visible, tangible success, in the manner of the old idea of a landed aristocracy. A Punjabi acquaintance (I don’t know him well) also sermonized to me: “You guys are played out. You don’t have kids. If you do, they’ve moved away. You’re not up to it anymore.” He’s right: the old 19th century immigrant communities — Armenians, Japanese, Scandinavians, Portuguese — are dying off (if not completely assimilated) and the third generation mostly sold out and moved on, their plots recombined into latifundia. (At lectures I meet those in the audience who say, “I grew up in Visalia. We had a place in Madera.” End of story.) But as I replied to my Sikh interrogator: “What makes your community exempt from the same forces that saw the Armenians, the Dutch, and the Swedes leave farming?” Does anyone still believe in the old idea of labor laboris gratia?

The California Paradox

No one is more upset than I about the direction of California — valued citizens exiting the state, high taxes, poor services, terrible public education, substandard infrastructure, contempt for the law, liberal sermonizing coupled with boutique apartheid, shameless ethnic identity politics, and public union bullying. But that said, as I’ve written ^[6], California is hard to destroy in a generation. For now, the governor is right that his higher taxes, his pie-in-sky high-speed rail, the solar and wind cons, the public employee fiefdoms — all that will continue for the present for three reasons.

Old-fashioned Energy

One, there is a lot of oil and gas in the Monterey Shale formation. It is located right in the center of the state, ideal in terms of exploitation and transportation. Drilling off Big Sur would be one thing, drilling in the scorched, godforsaken West Side foothills, where nary a Bay Area professor or Santa Monica lawyer has ventured, is quite another. In Montecito or Lafayette, you can get fined for painting your house off-pink; out here you can move nine mobile homes behind it, dig some holes for outhouses, string Romex, create a low-rent compound — and the most regulated state in the nation becomes the most wild. At some point soon, fracking and horizontal drilling will start in earnest. The money will flow to ensure funding for one-third of the nation’s welfare recipients, for the schools that rank 48th and 49th in the nation, for the unfunded $300 billion in pension liabilities, for ad hoc, stopgap tinkering on the murderous sections of the 99 and 101, and for the environmentalists to save the next bait fish in line.

Techies

Two, you can clone elsewhere Silicon Valley, but as yet, not quite replace it. Yes, I know Sacramento is taxing entrepreneurship to death, and forcing relocations to Texas and the like. But that said, Silicon Valley grew where it did for three reasons and they have not much changed since my graduate days at Stanford when I saw it take off.

First, the corridor between the great universities Stanford and UC Berkeley ensured highly educated engineers, MBAs, lawyers, and professionals in general. Both universities, Stanford particularly, are doing quite well, and their expertise is now more embedded in private enterprise than ever, despite the cheap Occupy Wall Street/May Day rhetoric ^[7] of the student plazas. Other nearby subsidiaries — UC Davis, UC Santa Cruz, several CSU campuses, Santa Clara, etc. — serve as satellite multipliers and purveyors of expertise. Second, the coast that’s nearby Silicon Valley faces an ascendant Asia, not a dying Europe. That means not just proximity to markets, but a blending of culture, particularly of highly intelligent and aspiring Asian professionals and immigrants, and a steady hand on the pulse of Chinese, Japanese, South Korean, and Taiwanese popular tastes. Third, there is a hip, cool culture in the Bay Area. I am not too fond of it, given its manifest hypocrisies that emulate medieval penance and exemption. The more one thirsts after riches and gives lip service to multiculturalism, the more the metrosexual hipster decries capitalism and seeks his apartheid world apart from the logical wreckage of his own ideology.

But I am also not stupid. When I sit in a café on University Avenue, the energy of the green, the gay, the feminist, the Obamaized techie, the Facebooker, et al is manifest. That sense of living in the “right” zip code means that they are willing to buy overpriced hovels and fork up astronomical prices for pedestrian food. Weird — but weirdly dynamic all the same. An engineer would rather have his family live in a 1,000 square-foot box in Mountain View than bring them up in a palace in Tulare. Most simply love Silicon Valley cool as much as much as I am glad to leave it each week.

Farming Cannot Move

The third and final reason why California sort of works when it should have gone broke long ago is, of course, the point of this essay — agriculture. You cannot pull up your pistachio orchard and transplant it to Texas or start almonds over in the Nevada desert. Agriculturalists hate what the state is doing to them: a cynical effort to overregulate, grow inefficient confiscatory government, overtax, and generally insult the entrepreneur on the cynical theory that farmers are going nowhere and so should pay bureaucrats a premium for allowing them to profit. And at $7,000-8,000 an acre profit, Jerry Brown’s high-speed rail, or Solyndra, or the Voice of Aztlan theatrics are small costs of doing business.

Tech income, oil and gas income, and farm income are pretty balanced and diverse incomes for the foreseeable future — and well apart from tourism, Hollywood, Napa Valley, banking, finance, and construction.

The Weirdest Place in the World

So California is both more poorly managed than any time in its past, more divided between rich and poor, more fragmented by opportunistic ethnic identity politics, more impoverished by massive illegal immigration — and never more naturally wealthy. The other day I drove through the verdant Central Valley on Manning Avenue. Each acre I zoomed by is producing thousands of dollars in global profits. At I-5, I looked out at fracking country, before descending into the land of Facebook, Google, and Apple — all on mostly poor roads, with terrible drivers and third-world public rest stops, and now and then passing inferior schools.

California may be in awful financial, social, civic, and political shape — but it is far, far from broke.