[Congressional Record Volume 141, Number 172 (Thursday, November 2, 1995)]
[Extensions of Remarks]
[Page E2109]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       WATER, AGRICULTURE, AND BANKING: CENTRAL VALLEY ESSENTIALS

                                 ______


                       HON. GEORGE P. RADANOVICH

                             of california

                    in the house of representatives

                       Thursday, November 2, 1995

  Mr. RADANOVICH. Mr. Speaker, this week the American Banker called its 
readers' attention to top agricultural leader, and banker, Tom Stenson. 
As a farmer and a former banker myself, I agree with Stenson as he 
talks of the importance of agriculture to banking, and of water to 
valley agriculture.
  In order for my colleagues to better understand this issue, I take 
pleasure in sharing with you the article:

               [From the American Banker, Oct. 30, 1995]

          Water Greases Ag Lending in Arid Central California

                       (By Barbara F. Bronstien)

       Fresno, CA.--Agricultural lending in central California's 
     San Joaquin Valley, with its more than 250 crops, from cotton 
     to nuts to vegetables, has been a whole new world to a farm 
     lender originally from Iowa.
       ``The diversity is just amazing here, compared to other 
     agriculture areas in the country,'' said Tom Stenson, senior 
     vice president of Fresno-based Valliwide Bank, who heads the 
     company's agribusiness group. ``The only limiting factor is 
     water.''
       Water, clearly, is something agricultural lenders cannot 
     take lightly in the West, where irrigation is king and 
     rainfall limited. If farm customers don't have an affordable 
     plan to procure water, their business is a no-go.
       ``This area would be a desert without irrigation,'' said 
     David Pruitt, a customer of Mr. Stenson's who manages 2,000-
     acre Santa Rita Ranch in nearby Merced County.
       California farmers get their water from two sources: 
     underground wells on site and surface delivery systems 
     controlled by the state's numerous irrigation districts.
       Farmers historically have had long-term contracts with the 
     government for water rights through these districts.
       When lenders evaluate a prospective farm loan, water 
     sources and costs are among their top questions.
       ``It is always a major concern to anybody here in 
     California who is a lender,'' said Michael C. McFadden, 
     assistant vice president of $50 million-asset Kings River 
     State Bank, Reedley, Calif., whose agricultural customers 
     mainly grow fruit trees and grapes. ``We need to see that 
     they've got water. Without water, they're dead.''
       Speeding by the fruit and nut trees lining the highways of 
     the western San Joaquin Valley, Mr. Stenson explained how his 
     $1.2 billion-asset bank and other western agricultural 
     lenders deal with the water issue when evaluating loan 
     requests.
       Lenders want to know where the operation is located, the 
     source and cost of its water supply, and any past water 
     problems, particularly during the seven-year drought that 
     lasted through the 1993-94 growing season.
       He or his department's other six agricultural lenders also 
     examine income and expenses and require a water plan from 
     prospects in areas without shallow underground water sources. 
     In addition, nonlender farm experts on staff or third-party 
     analysts evaluate crops and equipment.
       ``Otherwise, you run the risk as a lender of financing the 
     planting of a crop * * * and halfway through the season, the 
     guy runs out of water,'' Mr. Stenson said. ``Then, you're 
     stuck with only one alternative, and that's to fund the 
     purchase of very expensive water. Or, the other choice is to 
     let the crop go. Then where are you?''
       Cindy Nicoletti, a partner in the Santa Rita Ranch, said 
     that lenders' increasing concerns have meant more 
     documentation for her operation to procure the $500,000 to 
     $700,000 a year it borrows in production loans.
       ``We wouldn't do a lot of it if we didn't have to because 
     of the lending,'' Ms. Nicoletti said. `We have to ensure the 
     bank that we are doing all of the right things.''
       Lenders have paid even closer attention in recent years as 
     farmers' water costs have escalated.
       ``All farmers have had significant capital expenditures in 
     the last five years to either make their existing water go 
     farther or to gain additional water,'' Mr. Stenson said. 
     ``And that ripples through their balance sheet.''
       Some customers have changed to potentially higher-return 
     but riskier crops in an effort to cover rising water costs, 
     he said. For instance, they'll switch from cotton to 
     something like tomatoes or peppers.
       ``To us as lenders, we're concerned because traditionally 
     fresh market vegetables tend to be very cyclical,'' Mr. 
     Stenson said.
       ``You can make a bundle or you can lose your shirt in one 
     year, which is not the case with cotton or other more 
     standard crops.''
       At Valliwide, whose agribusiness group targets farms loans 
     of $500,000 to $2 million and whose branch network does 
     smaller agricultural loans, ``no loan has been collected as a 
     result of water or lack of,'' said Mr. Stenson, who 
     previously worked for the Farm Credit System in Iowa, New 
     England, and Nebraska before moving to Fresno eight years 
     ago. He joined Valliwide two and a half years ago.
       ``I know of others, through loan requests that we have had 
     that we denied, that clearly the stress, the high-priced 
     water, and the drought have put them on the brink of 
     destruction.''
       To compound matters, farmers are just one of three 
     interests that continue to vie for the state's water, along 
     with communities, such as the Los Angeles metropolitan area, 
     and environmentalists.
       And the tug-of-war may not bode well for farmers.
       ``We have water rights here, and we have been assaulted 
     from all directions'' by people trying to take them, said Mr. 
     Pruitt of Santa Rita Ranch.
       In some cases the government wants to renegotiate farmers' 
     long-term water contracts, Mr. Stenson said.
       ``That sends shivers up the spine of a lender.''
       The thought of Angelinos, and others who far outnumber 
     farmers, clamoring for their water frightens many lenders in 
     the state's agricultural belt.
       ``They want it to fill their swimming pools; we want it for 
     our farmers,'' said James C. Holly, president of Bank of the 
     Sierra, Porterville, Calif., who had an ominous prediction 
     for farmers: ``They're going to get it.''

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