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January 24, 2022

How to Invest in the California Drought - An Opportunity

Drought conditions are typically a death sentence in agriculture unless farmland has good access to a water supply. Year after year, worsening droughts plague many parts of California, and climate change is only making the situation worse. In fact, upwards of 500,000 acres in the southern valley will be forced out of agriculture over water supply issues.

With fewer acres in production, those with a good water supply will be worth a lot more money which is a surefire sign of a good investment. So, with strategic farming investments, the drought can make investors a lot of money.

Global Water Supply

While most of the world currently has abundant access to water, only seeing regional shortfalls during high drought periods, the demand is growing, and resources are shrinking. Agriculture is currently the largest single use of water, and that trend will continue, but industrial and household use is expected to grow and cause additional resource stress.


Over the next thirty years, land with good water access will grow in value, while land without access will be moved to other purposes. The main thing to remember is that while there is enough freshwater to meet global demands, those resources are not equally distributed where they are needed.

Global Water Shortage

Water use has more than tripled since the 1950s, while population size has only doubled, so the world is steadily creating a global water shortage. The effects of this shortage are already seen in areas like southern California and will become more prevalent in the next few decades. What types of societal change affect a burgeoning global water shortage?


For one, a change towards low-carbohydrate and gluten-free diets high in protein is having a major impact on the water supply. Protein sources like animals consume much more water than it takes to grow a wheat field. Another factor is inefficient wastewater collection and treatment. 


Water shortages occur when more water is taken from the groundwater supply than is returned. And currently, an estimated 80% of wastewater is released into the environment without being treated or returned to the aquifer. This is a significant source of pollution and drain on resources.

Is Water a Good Investment?

Despite the potential global water shortage problems, there is no shortage of water investments to choose from. Since water is not an optional commodity, these stocks are generally stable in value. The availability of water stocks is plentiful and growing. Water systems that once were public utilities have become increasingly privatized.


There are a few ways that individuals can invest their money in water as a product or an industry. One opportunity is to focus on underprivileged areas that lack access to water resources and invest in the companies that solve those problems. Another opportunity is to invest in companies that deal with bottled water. And a third is to invest in companies that build and operate water treatment facilities.


Land Income helps you capitalize on the stability of agriculture investments backed by the added value of water, a resource that is becoming scarce in the agricultural world. Learn more today!

irrigation system


The Value of Water in Agriculture

Water is an essential resource required for human survival. From direct hydration to the necessary input needed to grow food, the world cannot survive without water. It has been an abundant resource, but as agriculture and climate change threaten its abundance, it becomes increasingly more valuable.

Water Quality and Accessibility

Many factors affect the quality of water, including contaminants, alkalinity, and mineral content. Contaminated water can be a big problem. Specifically in agriculture, water is used for everything from washing produce to preventing frost. And due to its frequent contact with food products, it has a big impact on food safety.


This risk encourages the FDA to impose guidelines for microbial content, testing requirements, and treatment processes for agricultural water supplies. This also means that there is a growing difference between farmland that has access to water and farmland that has access to good water.

How to Get a Good Water Supply to Farmland

Water supply methods vary by region. Most farmland utilizes water from a well that taps into a groundwater source. These wells should tap into an aquifer with a high water table to ensure a steady water supply with prolonged agricultural use. In some areas, farms are required to report water uses for irrigation systems, especially during drought season.

Irrigation System Upgrades

The volume of water that agriculture enterprises require to grow crops at a commercial scale also requires extensive irrigation systems. There are different styles of irrigation systems that each take a different approach to bring moisture to the plants. 

Sprinkler Irrigation Systems

Much like a lawn sprinkler system, this style of irrigation soaks the plants from overhead. Sprinkler systems are the most versatile and adapt well to any environment.

Drip Irrigation Systems

Drip systems supply moisture directly to the roots of the plants rather than soaking them from above and hoping enough water trickles down to the surrounding soil. A drip irrigation system is growing in popularity because it conserves the most water.

Surface Irrigation Systems

This type of irrigation system spreads water across the surface of the landscape, allowing maximum hydration to reach all plants. Surface irrigation is inexpensive and can save a lot of money, but it is not the most efficient use of water.


Farms in drought-prone areas supplement natural rainfall with irrigation systems in order to ensure that crops receive an appropriate amount of moisture for maximum growth. While some might see irrigation systems as wasteful in drought conditions, it is really about allocating necessary resources to the plants that will become food for humans or animals. Large-scale agriculture operations use a significant amount of water, but their output in terms of the amount of food produced is equally large.

investing money in water


Indexes with Water-Related Investment Opportunities

As water becomes more valuable as a resource, many investors are looking for ways to get their slice of the pie. These common indexes make it easy to invest money in water-related products and services.

Nasdaq Veles California Water Index

Commodities like gold and oil are well-established major investments, and now water joins its ranks. California’s $1.1 billion water market is now publicly traded via the Nasdaq Veles California Water Index (NQH20). Each contract is about 3.26 million gallons of water. California is home to the largest and most important US agriculture market and, on hand, also a major consumer of water. Investors and farmers both share an interest in the future of water.

Dow Jones US Water Index

The Dow Jones US Water Index is a barometer for the future of water-related investments. It consists of 29 domestic and international businesses in the water market with a minimum market capitalization of $150 million.

The ISE-B&S Water Index

Formed in 2006, this index features 35 companies that are involved in water solutions like filtration technology and water distribution. 

The S&P 1500 Water Utilities Index

This index is a subgroup of Standard & Poor’s utility index and contains only two companies. S&P 1500 Water Utilities includes American States Water and Aqua America. 

The S&P Global Water Index

The S&P Global Water Index is well-established with 11 years under its belt and a global lineup of water-related companies in utilities and infrastructure or equipment and materials.

Investing in Water Commodities

There are plenty of ways to invest in water, including stocks, ETFs, mutual funds, and unit investment trusts. While most of these options focus indirectly on the water as an industry and the various businesses that support the collection, treatment, and distribution of this essential resource, investment opportunities do not stop here.

ETFs

In comparison to other types of exchange-traded funds, the world of water ETFs is pretty small. There are four ETFs in water that deal with water resource companies. Over the past year, water ETFs have outperformed many other markets. This is a sign of strength and growth for the future of water ETFs. 

Why Water is Growing in Popularity

Climate change is causing as many challenges as it is inspiring innovative solutions. As technology is paving the way for new ways to manage water resources, new companies are created, and new investment opportunities become a reality. 


But each investment opportunity can struggle or surge with fluctuations in the water market. If you are looking for a way to invest in water, consider the value of prime farmland with good water access as the best way to invest in the future of water.


Land Income brings value to California farmland by choosing properties with good water access to leverage one of the most stable investments in the face of climate change. Agriculture remains steady in good economies and bad. Get started investing today.

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