Visalia City Council - File #: 23-0505

Date	Ver.	Action By	Action	Result	Action Details	Meeting Details	Video
12/18/2023	1	Visalia City Council	approve as recommended	Pass	Action details	Meeting details	Not available

Agenda Item Wording:

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Westside Farming Operations - Consideration of staff recommendations regarding the City owned orchard properties located at the Water Reclamation Facility.

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Deadline for Action: 12/31/2023 - Current Farm Management Contract Ends

Submitting Department: Administration

Contact Name and Phone Number:

Leslie Caviglia, City Manager, Leslie.Caviglia@visalia.city, (559) 713-4332

Department Recommendation:

Staff recommends that City Council receive a report and presentation that provides the current state of the City owned orchards located at the Water Reclamation Facility, generally located east of Road 68 at Avenue 288 west of State Route 99 This report will provide information on the current state of the farmland, and the following recommendations:

1. Stop farming the 131 acres of walnuts, put the land out for a long term lease that would result in no use of the City’s GSA water allotments, and would include removal of the trees by the lessee. This lease could be for a farming or other type of operation that would be compatible with the Waste Water Treatment Plant.

2. Continue farming the 443 acres of pecans under the current contract with Jeb Hedrick for 2024, continued to use recycled water on this orchard as appropriate, put out an RFP for a farming manager starting at the conclusion of the 2024 harvest, conduct well and pump assessments to determine what actions may be required, and assess options for long term effective and efficient delivery of the recycled water to this orchard. Because of the water uncertainty, staff does not recommend considering a long-term lease on the pecans at this time. Once more is known about the status of the Mid and Greater GSA’s

3. Put the 408 acres of row crop land out for a contract for a use that would result in no use of the City’s GSA allotments. This lease could be for a farming or other type of operation that would be compatible with the Waste Water Treatment Plant.

4. Authorize staff to assess short and long term options for the land on an on-going basis, including, but not limited to, farming, solar panels, recreation, short term storage and other uses that would minimize water use, dust and control weeds.

These recommendations are based on the recent production and income figures from the land, and the outlook for the future of the current uses, and, most importantly, the uncertain situation associated with water use given that these lands are part of an severely overdrafted basin and are part of a Groundwater Sustainability Agency (GSA) that does not have an approved Groundwater Sustainability Plan and therefore the water situation remains in flux going forward. The report will provide a general overview of the current state of the City land as of the conclusion of 2021. and full production, revenue and expense information from 2022 is being confirmed and will be provided during the work session, as well as any information available for the 2023 season. Since harvest on both walnuts and pecans is done in the fall, these numbers are just being compiled.

Background Discussion:

Since the 1960’s, the City has been farming various areas of City-owned land within and around the City of Visalia. Over time, many of the orchards and row crop have been removed, land sold, or farming has ceased due to various reasons. Remaining, the City currently has 408 acres leased to Koetsier Dairy for row crops, 131 acres in Walnuts, and 443 acres in Pecans surrounding the Water Reclamation Facility. The row crop land is a short-term lease and at the time of this staff report, some of the land is being prepared for potential dry land farming. This report is intended to provide City Council the necessary background in order to make a sound decision regarding farming and the use of the land surrounding the Water Reclamation Facility.

Current Contract with Jeb Headrick Farming:

On February 19^th of 2019, the City of Visalia entered into a contract for farm management services with Jeb Headrick Farming. The purpose of this was to perform a short-term action plan in an effort to get the acreage into a healthy state of growth. In addition, the contract was used to bridge the City until a formal request for proposal (RFP) was completed. At that time, the contract involved various parcels located on the west side of Visalia, including 983 acres around the Water Reclamation Facility (408 acres leased outright to Koetsier Dairy for row crops, 131 acres in Walnuts, and 443 acres in Pecans), 203 acres on the east side of Visalia where the future East Side Regional Park is to be located, and 17 acres of walnuts along Highway 198 managed by Sciacca Farms. Due to unusual circumstances, an informal proposal process was performed, and the Jeb Headrick Farming contract expired in March of 2021; however, both parties agreed to continue month-to-month with a not to exceed $1,000,000 per year.

Staff returned to City Council at the February 16^th 2021 City Council meeting with an update on the City-owned farm land and farming operations. At this meeting, Staff informed City Council that the 203 acres on Road 152 and Mineral King Avenue ceased farming in 2019 due to the development of the basins at the East Side Regional Park. The 17 Acres along Highway 198 at Shirk Street was sold to a local developer for residential homes and a scenic setback. This left only the land around the Water Reclamation Facility being managed by the Jeb Headrick Farming contract (See Exhibit 1). Staff further updated City Council on the effort Jeb Headrick Farming provided for the walnut and pecan orchards located at the Water Reclamation Facility. This land was brought back to industry standards however neither orchard has yielded the anticipated revenue to date due to a variety of circumstances.

The current farm management contract with Jeb Headrick Farming is a year-to-year agreement. Standard practice is to seek a long-term contract by securing a one-year contract with four additional single year extensions. This is done to secure the associated cost and obtain the best pricing available. In order to be consistent with procurement policies and procedures a request for proposals was issued in late 2021 and proposals were received in early 2022. Staff has yet to recommend to City Council a proposal because of so many factors that have been in flux as identified within this report. Given all of the changes, staff is recommending that the request for proposals be re-issued if Council concurs with staff’

Farming Challenges/Considerations:

After completing most of the RFP process and discovering the financial sustainability concerns, staff began to evaluate various aspects of farming which have a significant impact on the decision to enter into a contractual agreement. In addition to fiscal constraints, other items considered include but are not limited to: the overall condition or health of the orchards, market conditions, and water concerns (supply, well reliability, ditch water, effluent water, GSA). Following, each of those issues are discussed.

Condition and/or Health of the Orchards:

To understand the overall condition or health of the City orchard, a review of Tulare County as a whole should be considered. Below is a summary from the Tulare County Commissioner from the Crop and Livestock annual report for 2021 specifically for walnuts and pecans.

	Bearing Acreage	Non-Bearing Acreage	Total Acreage
Walnut	42,800	586	43,386
Pecan	1,230	251	1,481

	Year	Harvested Acreage	Production per Acre	Total	Unit	Value per Unit	Total
Walnut	2021	42,800	1.71	73,200	Ton	$1,840	$134,688,000
	2020	42,000	2.05	86,100	Ton	$1,300	$111,930,000
Pecan	2021	1,230	0.53	652	Ton	$3,140	$2,047,000
	2020	944	0.87	821	Ton	$2,880	$2,364,000

Source - 2021 Tulare County Crop and Livestock Report

2022 data is still pending but reviewing and comparing the 2021 year to the 2020 year it can be observed that county wide harvested acreage has increased yet the production per acre has decreased. Total tonnage decreased by 15% and 20.5% respectively for Walnuts and Pecans. Furthermore, although the value per unit has increased for both nuts because the pecans production has decreased, the total valuation has decreased while the walnut total valuation has increased.

Specifically for the City’s 574 acreage of nut orchard (131 walnut and 443 pecan) when it is compared to the County statistics it shows that in 2021 the city increased production by 15% and 37% for walnuts and pecans respectively. This is opposite when compared to the County average and most likely can be attributed to fact that the City’s orchards are relatively newer plantings and still increasing in average yield. In addition, the City’s orchards are at a loss per acre while the County average increased per acre for both walnut and pecans. The orchard as a whole has experienced stress due to the ongoing drought and higher than normal temperatures. Coupled with the years of dry winters and series of days with the temperatures over 100 degrees, the trees become stressed which reduce the production and lowers the quality of the nut produced. This can be observed by the county wide reduction in walnut and pecan production. However, this does not factor in the recent rains the region has experienced in late 2022 or early 2023.

It has been discovered that the walnut orchard has the bacterial plant pathogen known as crown gall. Crown gall is present within the walnut orchard and it currently covers 30 to 50% of the orchard. Commonly found in many soils delivered from the nursery, Crown gall prevents the plant from moving water and nutrients up the trunk and causes the plant to become weak, stunted or unproductive. Unfortunately, there is no known cure for crown gall. It is recommended in order to treat the plants with crown gall, the soil immediately surrounding the roots should be dug up and disposed of. Although no specific cost estimate had been established, it is considered laborious and costly and the results can vary.

Walnut tree with Crown Gall

The pecan orchard appears to be healthy. Below is a photo of a sample of the walnuts recently harvested from the City of Visalia orchard. The overall quality of the City’s kernels are typically considered average. However, because in general the Tulare Walnut Variety has been overall graded as very poor, when the walnuts grown at the WRF are graded verse the general variety, the city walnuts grade above average.

Visalia walnut kernel sample

Market Conditions:

Attached to the staff report, City Council can find an October 4^th, 2022 letter from Diamond Foods LLC. who receives the City’s walnut harvest for production (Exhibit 2). This letter explained that this year’s crop is anything but normal. Walnut demand has not emerged, and export offers have been met with deafening silence. Shipping conditions have improved since the challenges identified during the height of the pandemic, however delays over the past two harvest have greatly shifted the market and caused a buildup of inventory. 2021 has remaining stored walnut crop that is now being blended with the 2022 harvest. This coupled with shipping issues has led processors with blended crops to have a resulting overall poor quality of walnuts. As Diamond explained, this is a multiyear issue that will take many years to emerge from. Although Diamond’s higher quality kernel may push through this turmoil, the greater California industry needs to improve export pricing. This will be highly unlikely due to the current supply and economic conditions. Without significant immediate changes to tariffs or the global supply, Diamond believes that the California walnut industry will need to reduce its production base while evaluating its overall quality to remain globally competitive. They further recommend that growers producing inferior quality nuts should consider removing this acreage.

In addition, Exhibit 3 attached is a September 30^th, 2022 letter from HNH Nut Co. who receives the pecans. They reported that the national reports are forecasting a large 2022 crop with the current pecan supply being tight. The large crop estimate has buyers cautiously purchasing as a potential market softening looming. HNH enters this harvest season with zero carry-in product and believes this brings value since supply is currently tight.

In summary, the pecan market is holding while the walnut market is challenged and still holds true as of the end of 2023.

Water Concerns:

Water Supply:

The groundwater elevation under Visalia is 148 feet below ground level. That is better than the all-time low of 154 feet below ground level, but is still a significant issue given the State mandate for groundwater sustainability. Water supplied to any resident within the city is derived exclusively from groundwater supplies. While the City does possess some surface allocation in the form of various ditch stocks, the water provided in this highly variable supply can be used only for recharge or irrigation purposes, or to trade/sell if economically feasible. Meanwhile, the state of water within the Kaweah Subbasin remains an unknown. There is not an approved Groundwater Sustainability Plan, and the State is also poised to impose significant per capita usage regulations on citizens throughout California. It has truly become a matter of every drop counting.

Well Reliability:

The land surrounding the Water Reclamation Plant has 8 agricultural wells providing irrigation for the orchards and row crop. 2 wells supply the walnut orchard and 3 wells supply the pecan orchard. In addition, 3 wells are located within the area identified for row crop. These 3 wells have not been used recently because the lease for the row crop includes the option for effluent water. The row crop has been utilizing 1200 gallons per minute of effluent water flow from the Water Reclamation Plant. This is further discussed in the effluent water section below. The current status of all 8 of the agricultural wells are summarized in the following table:

Well No.	Location	Status	Notes
1	Walnut #1	Operational	Poor performer
2	Walnut #2	Offline	See inspection info below
3	Pecan #1	Operational	Steady flow, need evaluation*
5	Pecan #2	Capped
4	Pecan #3	Operational	Steady flow, need evaluation*
6	Row crop #1	Operational	Surges, poor performer
7	Row crop #2	Does not pump	Not in water table
8	Row crop #3	Does not start	Condition Unknown

*Staff recommends having these wells inspected similar to Well No. 2. This will determine if lowering the well is an option or if the pump simply needs to be replaced.

Although the wells identified in the above table can be used for farming, not all of them are at this time. Inspection and review of wells are typically taking a month of lead time to actually perform the evaluation and cost on average $1,000 to be performed. Should the well contractor identify a new pump, motor, patch the casing, the cost to repair can increase to $20,000 to $25,000. In one instance, the city has observed a well that the repair cost reached $80,000. These costs for repair do not lower the well and a case-by-case review of each needs to occur to determine if the cost to repair is worth it knowing that if the water table drops further the well becomes ineffective. Identified within the table, each well has been indicated if the well is operational or not. Furthermore, if City Council directs staff to continue farming using the agricultural wells, then a complete analysis of each well needs to be done to ensure that each well has the capability to operate.

Although it may be assumed that a installing a new well or deepening an existing well could occur, the State of California currently prohibits it. Drought management legislature enacted by the Governor of California under executive order N-7-22 issued on March 28, 2022 does not allow for installation of new agriculture irrigation well or modification (deepening) to existing agriculture irrigation wells. Repair of existing wells are allowed, but many are finding that the dipping of the water table does not justify the cost to repair. Although the executive order provides a practice that helps the entire state of California be good stewards and conserve water, the executive order does hinder existing wells from being deepened, assuming the well meets the Groundwater Sustainability Act (GSA) regulations.

Ditch Water:

The City of Visalia owns stock in four separate ditch companies: St. Johns, Oakes, Persian, and Watson. All four stocks are managed under one ditch company, The Consolidated Peoples Ditch Company. City ditch stock volumes are highly variable, and dependent on precipitation timing and total volumes. In the Water Year 2022 (Oct. 1, 2021 - Sept. 30, 2022) the City of Visalia was allocated approximately 205 acre feet of water through the City’s Persian-Watson allocation, 195 acre feet of which was used to irrigate the aforementioned orchards. The remaining 10 acre feet were diverted into a recharge basin located on W. Walnut Avenue, east of Roeben Street. In any given year in which the city chooses not to divert any water resources for irrigation purposes, the water would be diverted into designated recharge basins, beginning as far eastward as possible of city, so as to take advantage of the natural hydrogeology of the region. This practice improves and/or decelerates the rapid decline of the groundwater table below the City of Visalia and surrounding regions.

Effluent Water:

Recently, the wells utilized for the orchards began to show signs of stress with lower-than-normal flows. That coupled with the row crop on southerly boundary being harvested and no longer using the effluent water from the Water Reclamation Facility (WRF), effluent water was utilized to irrigate the pecan orchard. Since then, staff coordinated with CIP Engineering to determine if effluent water could be utilized for both the walnut and pecan orchard. The findings are as follows -

Walnuts:

The walnut orchard is located to the northwest of the discharge point of the WRF located on the north side of Avenue 288 (see attached Exhibit 4). In order to make the connection a pipe would need to be installed around the plant basins and cross both Mill Creek and Avenue 288 in order to reach a location where the effluent water can be distributed to the walnut orchard. The project cost to perform such a CIP is projected between $1 to $1.2 Million. Fortunately, the City had water from the ditch that could be allocated to the walnut orchard assist with irrigation this summer (2022) and supplement the 2 agricultural wells. However, the use of effluent water for the walnut orchard is too costly of a project and is not recommended.

Pecans:

The pecan orchard is in a much better location to accept effluent water from the WRF. As shown on Exhibit 4, the pecans are located on the south side of the WRF. In fact, through the row crop area effluent water can be and has been directed to the pecan orchard. However, this indirect route requires tale ditches and routine maintenance in order to maintain distribution. A direct effluent distribution can be constructed at a cost of approximately $100,000. This will remove the indirect issues resulting from using the row crop distribution route. Staff recommends that if City Council wishes to retain the pecan orchard under the farm management contract, then an investment of $50,000 to have a direct connection, with a meter, is recommended.

In addition to the capital cost, available effluent water was analyzed to determine if the WRF has the capacity without impacting the city’s current contractual agreement with Tulare Irrigation District or Valley Oaks Golf Course. The WRF has the ability to provide approximately 3000 gallons per minute of effluent water. The pecans were accepting approximately 1000 gallons per minute this summer, which is equivalent to the effluent water that was provided to the row crop. The current capacity of effluent water could allow the City to provide effluent water to the pecan orchard and utilize the row crop land also. However, a concern with utilizing the effluent is the potential to have algae within the water. Algae plugs up the filter station just prior to irrigation. This will be monitored as the effluent water is used and staff could return with appropriate measure should the algae become and issue.

Groundwater Sustainability Act (GSA):

Unfortunately, the City falls within two GSA’s, the Mid Kaweah Groundwater Sustainability Agency (MKGSA) [for the pecans and row crop] and the Greater Kaweah Groundwater Sustainability Agency (GKGSA). Both GSA’s were formed in order to meet the provisions outlined within the Sustainable Groundwater Management Act (SGMA). One mandatory objective outlined in SGMA was to achieve sustainability within the boundaries of the GSA in regards to overdraft. Members of each board voted to enact an emergency groundwater restriction, which outlined specific water volumes allocated to landowners within the respective GSA boundary. This allocation was outlined in tiers, with each tier having an associated cost for the respective ground water pumped. The tables below depict each GSA.

Mid Kaweah GSA

	AF/Acre	$/AF
Native Yield	0.83	$0.00
Tier 1	0.83	$10.00
Tier 2	0.84	$10.00
Mitigation Tier	1.00	$260.00
Penalty	>3.50	$500.00

Greater Kaweah GSA

AF/Acre$/AF
Sustainable Yield	0.83	$0.00
Tier 1 Penalty	0.83	$60.00
Tier 2 Penalty	1.04	$120.00
Prohibited Tier 3	>2.70	$500.00

Due to the proximity of the City orchards falling within both GSA, the transfer of credits between the two GSA’s is something City Staff is interested in. However, at this time, because the GSA’s are only establishing their respective areas, the transfer has yet to be established. Furthermore, the debits calculated above for each respective area will also include credit for utilizing surface water. Surface water includes ditch stock as well as effluent water from the WRF. The GSA will assess charges on a case by case scenario and the City’s decision to utilize surface water and fallow land. While assessments have been currently assessed, it is unknown whether the GSA’s will have the authority to do so in the future, or if the state will control water usage and fees. This situation makes if very difficult to commitment to long term plans regarding farming on the City’s land.

Other Considerations:

To have a comprehensive picture of all the options, City staff provide these additional considerations for City Council consideration. Specifically, what are other costs that need to be considered should City Council cease farming or the use of a farm manager.

Prevailing Wage

It has been observed and commented on during previous requests for proposals and normal day-to-day discussions with industry partners that if the City did not have to pay prevailing wage the cost to farm would be much lower. When the City decided to farm these lands, prevailing wage was not a requirement. However, since then the City is now required to participate in prevailing wage similar to other CIP which increased the expenditures between 20 and 30%. This too has been a factor as to why the cost has increased over the past few years. Furthermore, the requirement to pay prevailing wages requires additional efforts which many farm managers refused to perform resulting in a smaller pool to pull from.

Removal of the Orchard

In 2019, with prevailing wage, the cost to remove the orchards at the ESRP was $4,500/acre. It can be observed that the City did not act on that unit cost because the remnants of the orchards remain. This cost was bid for the southerly portion of the ESRP, specifically Basin F, with an add alternate bid for the orchards further north. Given the pandemic and recent inflation, it is estimated that a conservative unit cost to remove an orchard is roughly $5,000/acre. The walnut orchard removal is then priced at $655,000 while the pecans priced at $2,165,000. Collectively, removal of both will exceed $2.75 million.

Lease

Similar to the 408 acres used for row crop, the City Council could direct staff to issue an RFP that would allow all three parts of this land (walnuts, pecans, and row crop) to be leased under an agreement. That lease could speak to any and all the issues identified herein in order to negotiate a lease amount that puts the farm management and all associated costs to the lessee. The City will receive a minimal guaranteed monthly payment, the potential water regulations make this difficult to commit to at this time.

Sale

The WRF will need to update their comprehensive plan that identified all current and future growth, including a buffer area, in order to determine which parcels could be identified to divide and sell. If City Council desires to sell a portion or entire sections, Staff will return to City Council with potential options for consideration.

Options:

Council has been provided a significant amount of information to consider. Staff is seeking direction from the City Council and have offered the recommendations noted at the beginning of this report.

Fiscal Impact:

Previously, the Farm Management Contract was multi-funded because numerous parcels were being farmed which were purchased by different funding sources. Since then, farming of only the land around the Water Reclamation Facility remains (Fund 4344). All related expenses are coded to fund and any proceeds from the sale of crop is also credited to the same fund. Should City Council wish to continue to farm the 575 acreages of walnuts and pecans, the operational budget within the water treatment plant fund has been increased through the budget process as previously discussed. However, the farm administrative costs need to be included. Also, as noted in the table above, the 2022 pecan harvest has not yet yield revenue.

Prior Council Action:

February 16, 2021 - City Council was presented an update to the city-owned farm land and farming operations.

February 19, 2019 - City Council entered into a contract with Jeb Headrick Farming for an annual not to exceed amount of $1,000,000.

Alternatives:

See the options section embedded the report.

Recommended Motion (and Alternative Motions if expected):

recommendation

I move to accept the report and direct staff to:

1. Stop farming the 131 acres of walnuts, put the land out for a long term lease that would result in no use of the City’s GSA water allotments, and would include removal of the trees by the lessee. This lease could be for a farming or other type of operation that would be compatible with the Waste Water Treatment Plant.

2. Continue farming the 443 acres of pecans under the current contract with Jeb Hedrick for 2024, continued to use recycled water on this orchard as appropriate, put out an RFP for a farming manager starting at the conclusion of the 2024 harvest, conduct well and pump assessments to determine what actions may be required, and assess options for long term effective and efficient delivery of the recycled water to this orchard. Because of the water uncertainty, staff does not recommend considering a long-term lease on the pecans at this time. Once more is known about the status of the Mid and Greater GSA’s

3. Put the 408 acres of row crop land out for a contract for a use that would result in no use of the City’s GSA allotments. This lease could be for a farming or other type of operation that would be compatible with the Waste Water Treatment Plant.

4. Authorize staff to assess short and long term options for the land on an on-going bases, including, but not limited to, farming, solar panels, recreation, short term storage and other uses that would minimize water use, dust and control weeds.

end

Attachments:

1. Exhibit 1 - Vicinity Map

2. Exhibit 2 - Oct 4^th 2022 Diamond Letter

3. Exhibit 3 - Sept 30^th 2022 HNH Letter

4. Exhibit 4 - Crop and well location with acreage