Finalist: Staff of Bloomberg

Banks, pension funds and insurers have been turning California's scarce water into enormous profits, leaving people with less to drink

By Peter Waldman, Sinduja Rangarajan and Mark Chediak

Graphics by Jeremy C.F. Lin and Kyle Kim

Photos by John Francis Peters

For Bloomberg Green + Markets

As storms battered California in March, the state’s inland breadbasket erupted with almond blossoms. It happens every year. The Central Valley—the source of 40% of America’s fruit and nuts—explodes in a riot of pink and white blooms. This year petals fluttered off branches into raging irrigation ditches that only a few months earlier had twisted across the dry dust like coils of snake molt.

California has a temporary reprieve. At the Woodville Public Utility District, 60 miles southeast of Fresno, Ralph Gutierrez has watched these cycles of flood and drought for decades. Gutierrez, 65, who grew up picking tomatoes and grapes with his parents in the nearby fields, has spent the past 43 years operating water systems for some of the poorest communities in the state. He’s a well whisperer. Brawny, with a tattooed forearm, a silver belt buckle and Western boots, Gutierrez coaxes water from stone aquifers that have been hammered for years by agricultural pollution and overpumping.

He took over Woodville’s 500 or so household hookups in 2001, when the water table beneath the small farmworker community’s well field was about 100 feet below the surface. The district’s two community wells, powered by electric pumps, produced ample clean groundwater for residential taps. Since then, California has experienced its driest pair of decades in 1,200 years, and the water level has dropped to almost 200 feet. One Woodville well dried up and cracked two years ago. The second was shut down because of nitrate contamination.

Last year almost 1,500 domestic wells went dry statewide, and the state auditor reported almost a million Californians had no safe drinking water in their homes. Today the people of Woodville drink bottled water.

This winter’s record storms, a welcome break from drought, lifted Woodville’s water level 18 feet. It will take decades of wet winters to refill the aquifer. For drought is only part of California’s water woes.

The other part unspools outside the window of Gutierrez’s white Toyota Tundra, on a drive through Woodville’s outskirts. Each side of the road is covered in dense thickets of almond, pistachio and walnut orchards that have grown to dominate the landscape in the past few decades. The nut trees are known as “permanent crops,” because they need copious, year-round irrigation over the course of their 30-year life span. That’s in contrast to row crops such as tomatoes and lettuce, or silage like corn and hay, which can be fallowed to save water during drought.

The owners of the unmarked groves are a mystery to Gutierrez. Every few miles, huge U-shaped nozzles stick up, spouts for disgorging water extracted from deeper and deeper underground for California’s nut juggernaut. The prodigious pumping has helped drop the water table in the San Joaquin Valley, California’s food belt between Sacramento and south of Bakersfield. The decline has deprived many shallower wells belonging to small farmers and poor communities such as Woodville of sufficient water supplies.

“Deeper pockets, deeper wells. That’s what’s basically going on here,” Gutierrez says, growing agitated as the endless rows of trees whiz by. “Whoever is doing this doesn’t give a damn about the small people.”

The invisible hand, it turns out, belongs to the long arm of investors in New York, Toronto, Zurich and other financial capitals. Some of the world’s largest investment banks, pension funds and insurers, including Manulife Financial Corp.’s John Hancock unit, TIAA and UBS, have been depleting California’s groundwater to grow high-value nuts, leaving less drinking water for the surrounding communities, according to a Bloomberg Green investigation. Wall Street has come to Woodville, wringing it dry. Since 2010, six major investors have quadrupled their farmland under management in California, to almost 120,000 acres in all, equivalent to a third of all the cropland in Connecticut. Despite epochal drought, these companies have fueled the growth of permanent crops, disregarding some of the most basic principles of sustainable investing.

Much has been made of the water use of local farmers and industrial-scale agribusinesses such as California’s biggest nut farmer, Wonderful Co., but the growing role of institutional investors in the state’s water crisis has gone largely unnoticed. Over the past decade, the financier-farmers have poured millions of dollars into digging deep wells, expensive capital projects that many communities couldn’t dream of matching on their own. In a presentation to investors obtained by Bloomberg Green, one company said it will eventually have to dial back its groundwater pumping yet can still reap handsome returns before that day comes.

Since the start of 2019, one of every six of the deepest wells in the San Joaquin Valley has been drilled on land owned or managed by outside investors, according to Bloomberg Green’s analysis of state well completion reports through August 2022. Of the landowners that have drilled the greatest number of deep wells since 2019, two of the top three are institutional investors: TIAA and the Public Sector Pension Investment Board of Canada.

This rush for water is an outgrowth of a decades-long bet on farmland by investors who see food cultivation as an asset class virtually assured of appreciating in a warming, more populous world. Globally, large investors and agribusinesses have snapped up about 163 million acres of farmland in more than 100 countries in the past 20 years. The land grab has given rise to a grab of an even scarcer global commodity: water. In a bid to ensure thriving investment portfolios, some of the world’s largest financial entities have amassed control over lakes, rivers and underground aquifers in places from California to Africa, Australia to South America, giving them outsize roles in managing an endangered resource that’s the basis of life on Earth. The trend has contributed to shifting hydrological patterns that stand to permanently disrupt communities’ access to fresh water. Local populations are paying the price in drained wells, high water bills and contaminated water supplies.

Deep wells drain shallower wells, a law of hydrodynamics that’s exacerbated social inequities in California and hastened the desiccation of the state’s Central Valley. “California’s groundwater history is one of modest replenishment during these very wet periods, followed by much greater losses during the ensuing droughts,” says Jay Famiglietti, a former senior hydrologist at the NASA Jet Propulsion Laboratory, who’s now a global futures professor at Arizona State University.

The impact of overpumping is permanent. The practice has caused much of Central California to sink at varying rates for a century, especially during drought, when farmers’ excessive groundwater extraction causes the subterranean clays to dry out and compact. In the past decade, parts of the San Joaquin Valley have dropped as much as a foot per year, according to the US Geological Survey. Subsidence, as the sinking is called, has damaged bridges, canals and other infrastructure that will cost billions of dollars to fix, the state says. The aquifers themselves are irreparable. Many groundwater basins, when drained, never recover their former storage capacity, hydrologists have found. “Groundwater in California has been treated as an extractive resource—you pump and hope for the best,” says Graham Fogg, an emeritus professor of hydrology at the University of California at Davis. “Capitalism is driving this. Investors don’t care, because in 10 years they can make all the money they want and leave.”

Nut trees gained luster for investors about 20 years ago, spurred by the surging popularity of low-carb, high-protein diets such as South Beach and Atkins. From 2001 to 2006, annual US almond consumption grew more than 25%, to over a pound per person, according to the US Department of Agriculture.

Most California nut growers are still local farmers. About 90% of the state’s 7,600 almond farms are family-owned, according to the Almond Board of California, the industry’s marketing arm. The most prolific deep-well driller in the past few years, by far, is Wonderful Co. But as Central Valley temperatures warmed and winters grew drier, institutional investors proliferated like beetles.

By 2010, Hancock Agricultural Investment Group was telling its institutional clients that permanent crops would offer attractive returns, as well as a potential hedge against inflation. Nut farming was largely mechanized, which promised to keep labor costs low. Drip irrigation and other technologies were boosting yields. Exports to Europe and Asia were soaring. Investing in crop land was a bet on diminishing global water supplies, Hancock predicted.

Neither extreme drought nor California’s first groundwater regulations in 2014 would slow the nut boom. Since then, the state’s almond acreage has exploded 50%, while plantings of pistachios, which can withstand drier conditions than almonds, have expanded almost 90%.

Institutional investors piled in. From 2015 through 2019, TIAA directed at least $258 million into about 8,600 acres of California nuts, grapes and row crops. Hancock, from 2016 through 2021, plunked down more than $67 million of investor funds on at least 6,500 acres of permanent crops and other produce. And Gladstone Land Corp., a publicly traded real estate investment trust (REIT), invested $518 million to buy 23,000 acres of mostly almonds and pistachios from 2015 to 2021, which it leases to local farmers. Other institutional buyers included Allstate Insurance, Prudential Financial and the Mormon church, whose Farmland Reserve has invested about $60 million in some 1,500 acres of California nut orchards since 2016.

It’s impossible to apportion blame, between drought and deep extraction, for any one well’s demise. Most of California’s failed water systems are a result of contamination—often a consequence of rampant agricultural drilling, propelled by drought. Deep wells suck surface contaminants such as nitrates from farm runoff down into the aquifer, where the plumes, at higher concentrations because of drought, are pumped into household and community water systems. Tapping deeper groundwater for drinking supplies isn’t an option for poor communities, as it can cost about $350,000 to drill a 1,000-foot well. It’s also dangerous. Beneath about 600 feet, many Central Valley water basins contain arsenic, a naturally occurring carcinogen.

In 2014, California became the last Western state to regulate groundwater pumping. The Sustainable Groundwater Management Act requires balancing recharge and extraction in all state aquifers by 2040, to stabilize the water table at levels that won’t cause undesirable results such as land subsidence and dried-out domestic wells.

But with the dry conditions and the surface water skyrocketing in price, when available at all, nut tree investors faced a stark choice: drill or die. Instead of a slow glide path to sustainability, as the groundwater law envisioned, a get-it-while-you-can race to the bottom of the aquifer broke out. From 2014 through August 2022, at least 70 wells have been drilled on land now owned or managed by the biggest institutional investors in California nuts, including Gladstone, Hancock and TIAA. The majority of those wells descend at least 1,000 feet underground—twice the median depth of all the state’s farming wells drilled in the same period. The wells on investor-owned land typically deploy wider-diameter pipes and are capable of extracting three times more water, on average, than other agricultural wells, according to the data available on state well-completion reports. Several investors say their well-drilling binge doesn’t matter because of pumping reductions mandated by California’s new groundwater rules. They say they’ve also taken steps to minimize their impact by installing more efficient irrigation systems, fallowing some of their farmland and recharging aquifers when excess surface water is available.

The big investors long knew the day of reckoning would come, say consultants and farm managers who worked with them. After the groundwater law passed, Hancock commissioned a report starkly warning that Hancock-managed almond and pistachio orchards would be tens of thousands of acre-feet short of water when the sustainability plans were fully implemented.

By then, however, most institutional investors assumed the investments would have long ago paid off, says David Orth, who ran the Central Valley’s Westlands Water District in the 1990s. “Even when we told institutional clients you’ll be short of water in 15 years, they said, ‘OK, but I can make a lot of money in 10,’ ” Orth says.

That was Hancock’s message to its investors last year, according to documents obtained by Bloomberg Green under Florida’s public-records law. In a presentation to Florida pension fund managers in February 2022, the company warned that it expects California’s groundwater regulations to limit well-water production in Tulare County by 75% by 2040. As a result, Hancock said it anticipates fallowing two-thirds of an 1,800-acre pistachio farm in the county by then. Still, “strong current cash flows”—the farm’s income earned a 10% return in 2021—“are expected to help mitigate this risk,” Hancock reassured investors.

Felicia Marcus, the state’s top water regulator from 2012 through 2019, says she recalls local farmers complaining that outside investors were out of control. Ripping out seasonal food crops to plant wall-to-wall almonds and vineyards amid historic drought was, well, nuts, they told her. “All of a sudden you had this influx of landowners who weren’t farmers and didn’t know or care about the history of land use here,” says Marcus, chair of the California State Water Resources Control Board at the time. “Behind the scenes, farmers were saying, ‘Someone’s got to stop them.’ ”

Hancock learned its lesson the hard way. In 2010 it paid $78 million for a 12,000-acre cattle ranch called Triangle T in Madera County, 70 miles northwest of Fresno. The ranch had rights to only a small amount of surface water, however, which meant Hancock would have to pump more than 30 million gallons of groundwater a day to irrigate the vast plantation.

In 2011, Hancock punched at least five wells more than 900 feet into Triangle T’s deep aquifer and the surrounding area. It carpeted the pastureland with 11,000 acres of nut saplings, destroying a 400-acre preserve of native vegetation, says Grover Wickersham, who sold Triangle T to Hancock and whose grandfather founded the ranch. “Permanent crops went from essentially zero to 100%.” A Hancock spokeswoman wrote in an email the company is unaware that a nature preserve was on the property and that it maintains 520 treeless acres for dry-land farming and aquifer recharge during floods.

In 2012 scientists working on restoring the nearby San Joaquin River for the US Bureau of Reclamation discovered that the Sack Dam was sinking several inches a year. The subsidence threatened an irrigation system serving 50,000 acres of farmland. The eventual suspected culprit: Hancock’s deep-water extraction beneath Triangle T. Farmers and irrigation districts on the river’s west side threatened to sue Hancock if it didn’t reduce the pumping.

Averting a lawsuit, the company agreed to throttle its deep pumps and purchase deliveries of surface water from west of the river, where farmers have some of the strongest water rights in California. After the agreement, which cost Hancock parent Manulife higher water bills and lower crop yields, the subsidence rate at the Sack Dam decreased by half. It also provided a model for how at least wealthy investors can adapt. “We’re hitting our goals under the agreement,” says Lucas Avila, Manulife’s senior manager of Triangle T. “Long-term sustainability is near and dear to everybody.”

Across the valley to the east, Hancock and other institutional investors continue to plumb the deep aquifer with little restraint. Near Woodville, construction has begun on an almost $300 million repair of a stretch of the Friant-Kern Canal. State officials say overpumping by farms has caused subsidence along the vital artery, which carries water 152 miles from a Sierra dam above Fresno to Bakersfield. The project’s first phase aims to fix a buckled section where water moves at only 40% of the volume at which it flowed when the canal was built in the 1950s.

In the past 20 years, the 6 miles between Woodville and the Friant-Kern Canal have been transformed into a giant nut plantation, with almost 5,000 acres of trees planted by institutional investors. In 2015, Hancock drilled two wells in the area at least 900 feet deep to water the drought-parched acreage. Four years later, TIAA dropped four wells to an average depth of about 1,100 feet on land it converted to pistachios. Woodville’s two wells, a few miles away, descend up to 600 feet.

“To knowingly go into a region like that and drill deeper wells really tests the limits of corporate ethics,” says Famiglietti, the Arizona State hydrologist, who did some of the earliest research at NASA on overpumping and subsidence in California. “This is coming at us at 100 miles an hour.”

TIAA, in an email from a spokesperson for its farmland subsidiary, Nuveen Natural Capital, said its water use at its Woodville-area farm has become more efficient by its replacement of 14 older wells with five new ones, as well as its installation of drip irrigation systems and its fallowing 60 acres for groundwater recharge. Since 2019, when the orchard was planted, TIAA said it’s deposited more water into the local aquifer than it’s extracted for irrigation of the immature trees, with about half that replenished supply coming just this year. These management practices mark “tangible examples of Nuveen’s commitment to sustainable agriculture,” the company wrote.

Subsidence also poses a serious risk to the California Aqueduct, the 440-mile canal that carries water from the Sacramento-San Joaquin Delta down the Central Valley’s west side to Los Angeles. From 2013 to 2016, overpumping dropped parts of the concrete structure almost 3 feet, according to the California Department of Water Resources, the canal’s operator. Last summer the 160-mile midsection was dropping 4 inches a year, says John Yarbrough, assistant deputy director of DWR’s State Water Project.

The buckling is expected to cost almost $900 million to fix. Officials blame the problem on the rampant expansion of permanent croplands. “What we are doing is more than we are able to sustain,” Yarbrough says.

Among the most active drillers along the California Aqueduct’s sinking midsection is Canada’s Public Sector Pension Investment Board, known as PSP Investments, the C$230 billion ($168 billion) pension fund of the Royal Canadian Mounted Police and other Canadian security services. In 2020, PSP bought 17,000 acres in the San Joaquin Valley, including 11,000 acres of mostly almond trees in western Fresno County purchased for approximately $234 million. Then, in the teeth of the drought, PSP drilled six wells of more than 1,000 feet each on the almond lands. Four of them are located within 1 mile of the sagging aqueduct, on land that sank from 1 inch to 5 inches a year from 2020 through 2022, according to the California Department of Water Resources. A fifth lies within 3 miles of the canal. The wells can extract anywhere from 1,200 gallons to 3,500 gallons of water a minute.

A PSP spokeswoman referred questions to Pomona Farming LLC, its California farm manager. Pomona’s Ceil Howe III says the company’s new wells align with its sustainable farming principles. Pomona is fallowing almost half the acreage it purchased because of water constraints, and its deep wells allow unused surface water, when available, to flow underground into the aquifer. As for subsidence concerns, new pumping restrictions limit groundwater extraction, and, according to maps produced by the local groundwater agency, Pomona’s farmland lies outside the area prone to sinking, he says.

On land beside the city of Coalinga, 50 miles south, a company registered to Allstate Investments LLC called NBInv AF4 LLC bought 4,300 acres of pistachios and other crops in 2019. Land in the vicinity had been sinking for several years. Still, the company drilled two 1,500-foot-plus wells in 2021 and 2022. Last year, Coalinga was forced to buy water on the open market to avoid running out because of reduced surface-water allocations from the state aqueduct. In an email, an Allstate spokesperson wrote that the company’s farm investments emphasize “sustainable water and land usage,” such as pipelines to access surface water, efficient wells, land-fallowing programs and drought-resistant crops including pistachios.

East of Coalinga, the city of Corcoran is the epicenter of the worst subsidence in California. In 2021, Prudential Financial Inc.’s real estate arm paid $26.5 million for a 630-acre pistachio orchard just south of town—in the heart of a cratering area that hydrogeologists have dubbed the Corcoran Bowl. The land has fallen almost 12 feet in places since 2007, damaging infrastructure and crushing domestic wells. Some spots have sunk more than a foot per year.

In March 2022, Prudential drilled a 1,228-foot well into the area’s deep aquifer, capable of extracting 2,400 gallons of water per minute. In an email, a Prudential spokesperson said the farm is helping recharge the aquifer with floodwater this year and has access to surface-water supplies. She added that Prudential purchased the land knowing it was subject to future pumping restrictions to control subsidence under California’s groundwater law.

Imelda Corona’s faucet started gurgling in 2021. She and her husband, both farmworkers, were living in the mobile home near Woodville where they raised their three kids. In 2019, TIAA drilled one of its four wells in the area not far from Corona’s home. TIAA’s well extended 1,070 feet into the deep aquifer. Corona’s descended 150 feet and went dry less than two years later.

Her husband filled small tanks at a nearby farm with water just clean enough for bathing and rinsing their sweat-drenched clothes, but not safe to drink. He paid $2 a gallon for purified water from a roadside stand. After eight months without water, their landlord kicked them out. The couple moved into another trailer with a deeper well and a $500 monthly rent hike. They also have to pay as much as $500 a month for electricity to power the deeper well. “Hopefully the country and the world does something to stop this crisis,” says Corona, 57.

UBS Group AG leases a 675-acre pistachio orchard to tenant farmers next to Lanare (population 500), one of the many farmworker hamlets relegated to the Central Valley’s dusty byways. From her front window across the road, Carmen Hernandez, 72, has watched for 27 years as the fields of cotton, onions and wheat were ripped out. Now there’s a wall of pistachio trees. Last May, as the local water table was plunging, UBS drilled a 900-foot well on the site to augment surface irrigation during drought. “Pistachio yields have exceeded our expectations,” says Erik Roget, who manages California properties for UBS Farmland Investors LLC.

Lanare’s much shallower wells are contaminated and undrinkable. The yellowish liquid that dribbled out of Hernandez’s kitchen tap last fall smelled like rotten eggs and left a brown stain on everything it touched, she says. Hernandez is surprised to learn that the world’s biggest private bank is involved with the orchard across the street, through a company called Olympic Sun LLC. “We need a solution,” she says. Roget declined to comment on Lanare’s water problems, but UBS said in an email that its tenant farmers are expecting ample surface water this year and less groundwater pumping.

A half-hour south of Woodville, the historic community of Allensworth is caught in a vise between a 7,000-acre pistachio farm tilled by Hancock and 4,600 acres of almonds, pistachios and pomegranates owned by Gladstone Land, the publicly traded REIT. Allensworth, founded as an intentional Black community in 1908 by Colonel Allen Allensworth, an escaped slave who served in the Union Army during the Civil War, was among the first towns in the US to be financed, built and governed by African Americans.

Its 177 households, now almost all Latino, drink mostly bottled water because Allensworth’s wells are contaminated with arsenic. Since 2019, Hancock has drilled four wells within 3 miles of the town’s well field, each at least 1,200 feet deep. Allensworth’s well, built in 1984, goes down 250 feet. Two Black families still farm in the community, barely. Ralph Pierro II, 39, grows vegetables on land acquired by his grandfather, who picked cotton at large plantations in the area. Over the years, Pierro watched Hancock’s enormous pistachio orchard rise next door and could make out its new well cisterns through the young trees a few years ago. But he never knew who owned the land.

In March, when a levee failed north of Allensworth, 25 residents worked through the night filling sandbags to save the town. They desperately needed tractors to help plug the levee, but Hancock, which farms about 10 square miles just south of town, didn’t reach out, says Kayode Kadara, 69, a longtime community leader. Nor did Hancock notify Allensworth when it drilled the four deep wells near the town’s water supply, he says. “We never heard from them in drought or flood.” Manulife’s spokeswoman wrote in an email that the company’s employees “live, breathe and work in these communities and are also experiencing challenges with levee breaches.” The company is allowing floodwaters onto its land in other places and assisting communities in need “whenever possible,” she wrote.

To the north of Woodville, past TIAA’s almond and pistachio lands and its 450 acres of walnuts near the city of Exeter, the Friant-Kern Canal flows past a small farmworker community called Tooleville. Surrounded on three sides by citrus orchards, Tooleville’s two wells produced barely a trickle last summer, usually during the evening or early morning, if its 300 or so residents were lucky.

At the end of a block of small houses, only 20 feet from the canal, a 37-year-old woman lives in a mobile home with her husband and six kids. A pair of stray dogs, a decaying wheelchair and a rusty barbecue occupied the front yard on a hot day last fall. She wouldn’t give her full name but called herself Maria. She emigrated from Oaxaca, Mexico, with her parents at age 5 and grew up in Tooleville. Her husband is a roofer, but they pick cherries, grapes and peaches when his work slows down.

Even when her tap dribbled enough water to fill a jug, it took an hour, came out brown and tasted like bleach, she says. A nonprofit agency brought 25 gallons of drinking water every two weeks, which ran out in five or six days. The family filled jugs from the sink for bathing and flushing the trailer’s single toilet. The kids took jug baths when they could. Maria bathed her 2-month-old baby every few days, if there was water. Dirty dishes stacked up in the dry sink for days.

“The toilet was the nastiest,” she says. They tried to bucket-flush every day, but that wasn’t possible. When it grew unbearable, they flushed with drinking water or carried jugs home from her uncle’s house.

Beyond a chain-link fence next to her trailer, water rushes south in the canal, swollen by the heavy rains, headed for almond and pistachio trees tilled by many of the biggest institutional investors on the planet. Maria says she’s never thought about why water flows next door to a million acres of farmland, yet her baby bathed in brown water and the family couldn’t flush their toilet for days.

“That’s for them,” she says, gesturing to the canal, “not for us.”

Updates: 44th and 45th paragraphs to clarify UBS’s relationship to a pistachio orchard near Lanare, California.

With assistance by: Cynthia Hoffman, Jaclyn Kessler and Amanda Kolson Hurley

Edited by Emily Biuso, Yue Qiu, Jason Grotto and Lauren Etter

Methodology: For this story, Bloomberg Green examined the extent to which institutional investors contributed to the drilling of wells and overpumping of groundwater during the recent drought in California. Our analysis focused on a region of Central California called the San Joaquin Valley comprising nine counties: Fresno, Madera, Tulare, Kern, Kings, Stanislaus, San Joaquin, Merced, and Mariposa.

To track land purchased by major financial institutions and outside investors, reporters obtained land-ownership records from county assessor’s offices. Bloomberg also purchased land records from private vendors such as Boundary Solutions and subscribed to online databases like ParcelQuest and AcreValue.

To understand the number of deep wells owned by institutional investors compared to those owned by farmers, oil companies and others in the Central Valley, reporters cross-referenced the ownership information with well permit data from the California Department of Water Resources. Using Assessor’s Parcel Numbers (APN), unique identifiers assigned to parcels of land, Bloomberg was able to identify the wells owned by major institutional investors.
In fewer than a dozen cases, APNs were incorrectly entered in the well completion reports. In those cases, we performed additional checks using satellite imagery as well as writing to the institutional investors to verify the location of the wells.

For this analysis, Bloomberg defined a “deep well” as one with a total completed depth greater than 90% of the agricultural wells drilled in the same county. The analysis covered all wells drilled from January 2019 to August 2022. We excluded wells drilled by water districts.

To analyze the effects of over pumping groundwater during periods of drought, Bloomberg analyzed more than a million completion reports provided by the California Department of Water Resources between 1973 and August 2022. The frequency of drilling typically increased during periods of drought, and the median depth of agricultural wells has been steadily growing since the 1970s.

In the absence of publicly available statewide data on water usage by investors, Bloomberg used well depth, diameter, and well yield from completion reports to gain insight into water usage. Well yield is the amount of water a well is capable of pumping. This approach doesn’t account for surface water usage by investors. Approximately 50% of the data was missing yield information. The analysis showed wells owned by institutional investors were typically wider and had twice the median depth compared to other agricultural wells. Investors’ wells were capable of yielding more water.

In order to analyze the proliferation of permanent crops in California, including those owned by institutional investors, we counted almonds, pistachios, and grapes as permanent crops in land-cover data from the US Department of Agriculture’s National Agricultural Statistics Survey. We also consulted land-cover data from the state of California.
Bloomberg consulted with multiple researchers for this story, including experts from the Department of Water Resources. While the geological characteristics of each landowner’s property are unique, experts agreed that in general deeper and wider wells posed a greater risk of depleting the aquifer at a faster rate and contributing to subsidence by piercing through multiple layers of the aquifer.

The state just moved to restrict housing construction around Phoenix as groundwater demand outstrips supply. But fast-growing towns are already buying water from elsewhere — and investors’ bets are paying off.

By Leslie Kaufman, Jeremy C.F. Lin and Linda Poon

Photos by Rebecca Noble for Bloomberg Green + CityLab

With sand-colored houses overlooking an ornamental lake and a vast pool complex, Harvest in Queen Creek, Arizona, is typical of the developments that have multiplied on the fringes of Phoenix in recent years. The homes abutting the Sonoran Desert start at $400,000 and are being snapped up by young families and retirees even as mortgage rates rise.

Queen Creek was incorporated in 1989 when its population was just over 2,500. Now this town 35 miles southeast of Phoenix has more than 70,000 people, and local leaders had hoped it would double in size again. As of last year it was the seventh-fastest-growing city in the nation, according to the US Census Bureau.

The explosive growth of Queen Creek and suburbs like it in Maricopa, Pinal and Pima counties had rested on the promise that the vast aquifer system beneath them held enough groundwater to keep the pools full for 100 years. That assumption came to an end this month after Arizona officials made a stunning announcement: There’s not enough groundwater to meet projected demand, and new housing construction in the region will be more tightly regulated. A new state report indicates the water supply is about 5 million acre-feet, or 4%, short of what’s needed the next century. It’s enough of a gap to pause development plans and could send home prices higher.

More importantly, it’s challenging the mindset that desert growth can continue without limits in a time when climate change is making everything even drier. “Essentially, we’re overdrawing that bank account of groundwater, and we’re overdrawing the amount in storage,” said Sharon Megdal, the director of the Water Resources Research Center at the University of Arizona.

Many of the US counties that are growing the fastest now also happen to be among the driest, according to an analysis by the Economic Innovation Group, a Washington, DC think tank. That’s projected to continue with Americans flocking to warmer areas, setting up increasingly fraught struggles over a scarce natural resource.

Arizona is at the leading edge of these water battles. In some places around greater Phoenix, new development that would draw on the aquifer won’t be allowed. Those places include Queen Creek.

But town officials aren’t panicking over the new rule. That’s because Queen Creek has already been diversifying its water portfolio, in a way that was once controversial but now seems prescient. Most towns around Phoenix rely at least in part on local groundwater, some extensively so. Queen Creek’s main plan has been to reduce its dependence by buying water on the free market, shifting supplies from farms or less populous water districts far away.

Back in 2018, anticipating drier times ahead, the town paid $21 million to a farm on the Colorado River, 200 miles away, to transfer some of its water rights in perpetuity. The deal met with howls from people who saw it as rewarding “drought profiteers.” The farm had been purchased for only $9 million in 2013 by Greenstone, a water-investment firm owned by Massachusetts Mutual Life Insurance Co., allowing an investor to realize an extraordinary return.

Fearing that water speculation would suddenly sap agricultural areas — water rights had been passed from farm to farm along the river for years, but never far away — three rural counties sued the federal government to block the transfer. But in April a judge let the deal go through while the lawsuit plays out, and the river water is expected to arrive in Queen Creek, via the Central Arizona Project canal, as soon as July.

“We are pioneering a new system,” Queen Creek’s utilities and water director Paul Gardner told Bloomberg Green earlier this year, even before the state made its dramatic groundwater announcement. He described the town as leading the way toward a more rational model in which more of Arizona’s water flows from agriculture to homes. Currently, more than 70% of water consumed in the state is used for farming.

Opponents predict dark outcomes: namely, that prices will rise dramatically with competition and as a result more and more farmers will sell out, leaving the rural communities high and dry. Holly Irwin is a supervisor for La Paz County, where the farm that sold to Queen Creek is located. “I am worried about everyone transferring water that has water rights,” she said, “and there will be nothing left for river communities.” La Paz is one of three counties that sued to stop the water sale.

Gardner doesn’t deny that there will be winners and losers in the coming scramble for water. Suburbs like his will be able to grow only if they can buy enough outside supplies. As more towns follow in Queen Creek’s footsteps, he says, “The costs are going to be astronomical.”

Gardner adds, “We don’t know the limit to the price of water yet. But we are about to find out.”

In the beginning, there was organized water crime. As Phoenix’s growth went into overdrive in the 1960s and 1970s, mobsters made millions selling Easterners land that turned out to be bare patches of desert. So in 1980 Arizona passed a law requiring that developers prove a 100-year “assured supply” of water before anyone could get a permit to build.

To prevent depletion of the precious and finite resource, in 1993 the state created the Central Arizona Groundwater Management Replenishment District (CAGRD). Communities would pay to pump water and in return the agency would replenish what they took out with water from the Colorado or other rivers.

Back then this seemed easy: There were less than a million people in Phoenix, and Colorado River water was “abundant,” as CAGRD officials wrote at the time. Official projections described the chance of a shortage in the next 20 years as “virtually non-existent.”

Since then the population in and around Phoenix has surged to almost 5 million people. By 2024 more than 1 million people in 380,000 households will rely on groundwater districts, severely taxing it in places. And up until the state’s water-scarcity decree earlier this month, the forces behind the building boom chose to minimize the undeniably deepening drought. West of the city in booming Buckeye, for example, more than two dozen developments are in the pipeline but not yet built.

For years the state was able to balance the conflicting trend lines of more people and less available water for two main reasons. First, conservation: Ninety-three percent of water that enters wastewater treatment in the state is recycled. The lake in the center of Harvest, the new development in Queen Creek, for instance, stores treated effluent from kitchens and bathrooms and makes it available for gardening and landscaping so that groundwater doesn’t need to be used.

Second, some of the water that once went to farms now flows to people, who are not as thirsty as crops. An acre-foot of water can grow a little more than a third of an acre of cotton — or sustain three average households for a year. Arizona’s rapid urbanization has actually helped temper demand for water. The state used the same amount of water in 2017 as it had in 1957, or roughly 7 million acre-feet a year, according to the Arizona Department of Water Resources.

But then the rush on groundwater coincided with the region’s most severe drought in 1,200 years, fueled by climate change. Drought has reduced the flow of the Colorado so much that last year, the federal government cut Arizona’s draw from the river by 21%. In May, under federal pressure, Arizona, California and Nevada all agreed to a combined cut of another 13%.

“The region has to have a plan for a future with less water overall,” said Kevin Moran, who does water policy advocacy in the Southwest for the Environmental Defense Fund. “And we can’t assume going forward that diversions from the Colorado River or other surface water are going to solve the problem.”

Soon after she took office in January, Arizona Governor Katie Hobbs, a Democrat, said it was her top priority to tackle the shortfall straight on, calling water management “the challenge of our time.” With that she released a Department of Water Resources report that she claimed had been held back by her Republican predecessor. The document focused on the groundwater west of Phoenix and indicated that towns like Buckeye did not, in fact, have enough to sustain their anticipated growth. A subsequent report released earlier this month from the same department found a similar mismatch across a larger area, prompting the state’s new limits on housing development.

The restrictions could shift the pattern of growth in the region long-term. Builders might rethink large homes set around lush golf courses. Residential development may move from the exurban fringes to closer-in locations with water access. Tracts without water might be developed for industrial or commercial uses rather than housing.

And, clearly, the price of water will go up.

In addition to the 2018 deal with Cibola, in 2021 Queen Creek paid $30 million for 5,000 acre-feet of water over 100 years in Harquahala, a basin west of Phoenix. It’s negotiating for another 8,000 acre-feet there, though the cost will likely be much higher this time around: Buckeye approved paying $80 million for 6,000 acre feet from the same area in January, and Gardner says he expects to pay about the same per acre foot. That’s more than double what Queen Creek paid in 2021.

Households in the groundwater district pay bills for water and separate assessments for groundwater replenishment. Those rates have already gone from $154 per acre-foot in 2002 to $768 per acre-foot in 2021. Laura Gringnano, the manager of CAGRD, says acquiring new supplies since 2010 to replace the diminishing Colorado was part of the reason prices have already spiked.

In the days since the governor made her groundwater announcement, Eric Orsborn, the mayor of Buckeye, says he’s fielded hundreds of calls from residents and businesses worried about their water becoming unaffordable. (His own water bill, separate from the assessment, can reach $400 a month, he said.) He tells people to relax: “We want growth to pay for growth. It wouldn’t be fair to our current homeowners to foot the bill.”

The rising cost burden will not be felt equally. It will fall on municipalities and developers and, more quietly, on buyers of new homes. Orsborn says Buckeye will work with developers to find new sources of water, but developers will have to shoulder the cost. With the 100-year assured supply rule, they must lock in water before they build. That cost will then be factored into the price of new homes and passed on to buyers.

In Queen Creek, similarly, Gardner estimates that the cost of securing water may eventually raise individual home prices by $15,000. He doesn’t think that will discourage buyers.

But there are other municipal costs to get more water for existing homes. Queen Creek Mayor Julia Wheatley says the town spent $168 million this year alone for “renewable water resources,” up from $60 million last year. She says most town residents won’t see a dime for this on their water bill or property taxes because the money came out of general funds.

There is new infrastructure spending on the horizon, too. Queen Creek is currently working with several other communities to evaluate the economics of raising the Bartlett Dam on the Verde River. The state of Arizona is looking at the cost of desalination projects.

Although groundwater assessments still average under $100 dollars per household annually, according to CAGRD, the increases were significant enough to convince Gardner, a former water company owner, that he could do better by purchasing sources outside the groundwater district. “We have to protect ourselves,” he said.

But that, of course, creates a cycle of competition, as CAGRD also has to hunt for alternative supplies, since there’s ever less water available from the Colorado River to top up the aquifer.

“I don’t want to get into lecturing about supply and demand,” said Megdal, the water-resources expert who is an economist by training. “But when supply is less and the demand’s still there, what is expected to happen? Prices go up.”

About 200 miles east of Queen Creek near the California border sits Cibola, a tiny riverside farming town. The mighty Colorado looks like a large brown stream by the time it passes through here. Farmers grow alfalfa and cotton, both water-intensive crops.

River farms have something else that is increasingly coveted: private water rights. Many of the farms predate the incorporation of nearby cities and have a legal right to draw water from the Colorado River indefinitely.

Deep-pocketed investors guessed that these lands will be very valuable and have quietly been buying them. In 2013 Greenstone purchased a farm with water rights in Cibola, and Queen Creek in 2018 bought the rights to 2,033 of its acre-feet, enough for about 7,000 homes for a century. The deal left Greenstone with the land and even some of the water, as well as a gain of about $12 million.

Greenstone did not respond to requests for comment. Grady Gammage Jr., an attorney who represented the company on the purchase, said concerns the deal will cause a domino effect are overblown. He said few farmers have the high-priority rights that buyers would want, and even when they do, the logistical challenges of moving the water are formidable.

He does, however, acknowledge that at least some of the state’s agricultural water will be sold for high prices — and he thinks that’s fine. “Part of the reason we have the problems we have is that we haven’t allowed markets to operate with regard to water like we do other resources,” said Gammage, a former president of the Central Arizona Project, the canal that brings Colorado River water to central and southern parts of the state. “And water is very seldom priced anywhere near its real value, and that’s the source of a lot of these problems.”

Now that a judge has declined to stop the Queen Creek transfer, people are watching to see if other water investors will cash in and for how much. According to local property records, Greenstone still has additional holdings in La Paz and neighboring counties. Water Asset Management, a New York-based hedge fund, has farm acreage across the state. And Harquahala Valley Landowners, a group of farmers and investors, is looking to sell water in their irrigation district west of Phoenix.

Irwin, the La Paz County supervisor, says she’s not done fighting deals like the one made between Queen Creek and Greenstone. She said that she and other rural officials met with the governor in May to ask her to ban future water sales from the river. The governor’s office did not respond to requests for comment.

Irwin also wants to change how farms are taxed. If their main business is selling water and not growing things, she argues, they should be paying a mining tax. “This is wealth coming out of the ground and being shipped away. We should be compensated appropriately,” she said.

Not everyone in Cibola supports this proposal. Irwin says some of her own neighbors are mad about it. She laughs: “They think they are going to get rich selling water.”

Editors: Amanda Kolson Hurley, Chloe Whiteaker and Aaron Rutkoff

Zhong Shanshan built his Nongfu Spring empire by extracting water from some of the country’s most ecologically important rivers and mountains.

By Bloomberg News

The misty, forest-carpeted Wuyi Mountains have stood almost untouched for millenniums in southern China. Ancient Taoist temples are one of the few signs of human settlement at the Unesco World Heritage Site, which is surrounded by dramatic river gorges and rainforests that are home to pangolins and clouded leopards.

On the edge of the trees, a bright yellow rectangular factory sits amid the lush greenery, like a stray Lego left behind on a lawn. Emblazoned outside is the name Nongfu Spring, China’s most recognizable bottled water brand. More than 1 million tons of fresh water pumped from Wuyi’s primeval forests arrive each year at the facility, where it’s bottled, topped with the company’s signature red caps and trucked to convenience stores and supermarkets in the region.

Every plastic container that leaves this site, and Nongfu Spring Co.’s 11 other extraction points in China, goes to building a bottled water empire owned by the country’s richest man. Zhong Shanshan, a former journalist who began amassing his fortune three decades ago selling health supplements, has a net worth of about $63 billion, according to the Bloomberg Billionaires Index, outpacing even the founders of TikTok and Alibaba Group Holding Ltd. Most of his wealth comes from drawing water from some of China’s most ecologically sensitive lakes, mountains, springs and waterfalls and selling it to the nation’s burgeoning middle class.

Every plastic container that leaves this site, and Nongfu Spring Co.’s 11 other extraction points in China, goes to building a bottled water empire owned by the country’s richest man. Zhong Shanshan, a former journalist who began amassing his fortune three decades ago selling health supplements, has a net worth of about $63 billion, according to the Bloomberg Billionaires Index, outpacing even the founders of TikTok and Alibaba Group Holding Ltd. Most of his wealth comes from drawing water from some of China’s most ecologically sensitive lakes, mountains, springs and waterfalls and selling it to the nation’s burgeoning middle class.

United Nations-backed scientists have warned that global warming will likely make droughts such as China’s longer and more frequent. That warning has intensified a rush by investors and corporations around the world to lock up—and cash in on—one of Earth’s most precious resources: water. In places already enduring water stress, such as Wuyi, the consequences can be wrenching. Qiang Huanrong, who lives close to Nongfu’s water extraction site by the Wuyi Mountains, has spent years fighting against the company’s operations. “This is a monopoly of water,” Qiang says. “How come water resources have become their tool for getting rich?”

China is the world’s largest consumer of bottled water, according to market research company Euromonitor International, and sales growth is projected to outstrip that in the US and Western Europe in the next two years. In most major Chinese cities, bottled water isn’t merely a convenient way to hydrate on the go; it’s a necessity. Many households have 20-liter (5.3-gallon) drums delivered regularly for drinking and cooking, given government warnings that advise against directly consuming tap water. That potential for growth made Nongfu the most popular initial public offering in a decade when it listed on the Hong Kong stock exchange in 2020. Its share price has more than doubled since, elevating Zhong, who owns 84% of the company, to the ranks of the world’s uber-wealthy.

For Zhong to keep increasing his riches and meet rising demand, he’ll have to find ever more water sources. In 2019, Nongfu extracted 33 million cubic meters—enough to fill 13,000 Olympic-size swimming pools—from 10 sources, according to the company’s latest annual data. It has added two sources since, with a third under construction, and is seeking new sites in New Zealand and Tibet.

Zhong was born in 1954 in a small town in Zhejiang province along China’s central coast. He came of age during the Cultural Revolution and started his career at a state-run newspaper during the heady days of economic liberalization. In 1985 he wrote a story following the journey of Hong Mengxue, a food engineer who left a state-owned factory to join a small business. Three years later, Zhong quit his own stable job and, after several failed business ventures, began selling a nutritional product in 1993 with Hong as his chief engineer. Zhong claimed the supplement, made from turtle meat, boosted immunity and eased insomnia.

The success of that company earned Zhong the capital to start Nongfu in 1996. His time as a journalist had taught him an important lesson. “The reputation of a company in the market economy is greater than its fixed assets,” Zhong told Phoenix TV, a Hong Kong network, in 2015. “If the reputation is bad, nothing can be sold.”

That obsession with image persisted as Nongfu established its name. Its bottles, which sell for 2 yuan (27¢) each, have become ubiquitous in China—akin to Poland Spring in the US or Highland Spring in the UK. As the company expanded into more upmarket products, Zhong spent three years working with five design houses to create a series of glass bottles for premium spring water from the virgin forests of the Changbai Mountains, near the North Korean border, he said in a 2016 speech. Later that year, the bottles appeared in pictures from a state dinner hosted by President Xi Jinping for world leaders at the Group of 20 summit.

Zhong is still deeply involved in marketing decisions for Nongfu’s bottled water, according to an employee who regularly attends meetings with him. Products have to be “flawless,” says the person, who asked not to be named while discussing their boss. They recalled a time when Zhong had everyone start over on a campaign at the last minute because he “wasn’t 100% satisfied.” Under Zhong’s watch, Nongfu has introduced expensive novelty products including water for babies (from a “sterilized production line”) and tea brewing (with “optimum acidity”). The company has also moved into other beverages, such as oriental tea, energy drinks and juice produced from its own orchards.

Nongfu’s dominance comes down to a pivotal decision two decades ago to sell water that comes only straight from the source, which the company claimed in a nationwide campaign has greater health benefits than water purified in a factory. More than 60 rival companies, led by Hangzhou Wahaha Group Co., appealed to Chinese regulators at the time, accusing Nongfu of defamation and false advertising. Zhong was fined 200,000 yuan, but he won something much greater: a lion’s share of the nation’s blossoming bottled water market as consumers switched en masse to drinking Nongfu’s spring water.

Since then, Nongfu has focused its messaging on the natural origins of its water and the stunning landscapes surrounding them. A commercial shot in 2019 by Emmy-winning wildlife filmmakers features young wild tigers gamboling among the trees near the Changbai Mountains. A Norwegian architectural company helped design a walking path, framed in light wood, through the water-extraction site so visitors can experience the ancient forest up close.

Meanwhile, Zhong has cultivated his own image as a humble executive concerned only with the excellence of his product. In Chinese media, he is often referred to as a “lone wolf,” a label he reportedly approves of, because of his preference for making decisions alone and his rare public appearances. Nongfu turned down a request to speak to Zhong, saying he likes to keep a “low profile” and hasn’t given an interview in many years.

Those who’ve met Zhong describe him as understated and down-to-earth. He eats alone in the company cafeteria—no entourage in sight—and dresses simply in T-shirts and sneakers. “He just looked so normal,” says Xiaoyi Gu, a project manager at Atelier Brückner, which designed the exhibition space at Nongfu’s Changbai factory. “I didn’t feel he was so rich.”

One of the few times the media provoked a response from Zhong came in 2013, when a Beijing newspaper questioned the quality of Nongfu’s products. Zhong delivered a 100-slide defense, sipping on Nongfu water throughout the three-hour press conference. He shut down Nongfu’s factory in Beijing, sued the newspaper for defamation and took out advertisements in hundreds of news outlets across the country touting results from laboratory tests organized by the company.

Flying under the radar appears to have served Zhong well, as other Chinese billionaires, including Alibaba co-founder Jack Ma, have faced repercussions for flaunting their wealth or been the subject of government crackdowns. Zhong also made the prescient choice to steer clear of the real estate sector, which minted the fortunes of many of his peers. “This bubble will make the Chinese economy bear a considerable burden in the future,” he said in the 2015 interview, a warning that almost seems quaint as China struggles with an economywide property crisis precipitated by overleveraged developers.

Nongfu has also remained a largely brick-and-mortar business amid the internet boom that’s remade China’s economy. Zhong has said he admires Apple Inc. founder Steve Jobs and Huawei Technologies Co. Chief Executive Officer Ren Zhengfei, whose companies focused on developing superior consumer products and supply chains rather than social media or e-commerce platforms.

“The world’s largest internet company is not a Chinese internet company,” Zhong told Phoenix TV. “Look at what Apple is doing. It has opened many offline stores to be closer to consumers.”

Qiang remembers the day Nongfu arrived at his village in the Wuyi Mountains, a quiet hamlet where dozens of gray sloped-roof houses sit by a clear brook, nestled among green hills and tea plantations. Some homes double as teahouses or hostels for tourists, who come to enjoy forest hiking, rafting, monkey watching and the sampling of local tea, one of Wuyi’s most famous exports.

Workers equipped with a fleet of trucks “barged in” without warning in 2019, Qiang says. “I told them it was my home, but they just ignored me.” Over the next few months, he says, the men cut down trees and razed crops to build a dam and bury water pipes.

Nongfu declined to answer questions about its water-extraction practices. “Vested interest groups in the Wuyi mountain area concocted fake news about Nongfu Spring’s ‘deforestation’ through staged photos and other means,” a spokesperson said in an email. “On the premise that the objectivity and authenticity of news cannot be guaranteed, we regretfully believe that there is no point in replying.”

Nongfu’s presence has divided Qiang’s village. Some say its decision to come to Wuyi has helped to attract visitors who otherwise might not have heard about the place. Others have protested against the factory from the start. After Qiang’s daughter posted pictures of destroyed forests on the Weibo microblogging platform, local authorities ordered Nongfu to restore the chopped-down trees. The company blamed its construction contractor and sued Qiang’s daughter for defamation, though it later dropped the lawsuit. Qiang says he in turn took Nongfu to court in April 2020, accusing them of illegally using land he’d rented for 60 years to run a tourism business. He lost and is appealing.

China Biodiversity Conservation and Green Development Foundation, an environmental organization based in Beijing, filed a separate suit against Nongfu in 2020, arguing that the company failed to obtain sufficient approvals for construction in the nature reserve’s buffer zone. The foundation lost in city court and is appealing to a provincial court. Wang Wenyong, the lawyer who argued the case, says the company should consider its extraction sites more carefully, because it can have a “huge impact” on places such as Wuyi. Nongfu should extract water from large reservoirs or rivers, he says, rather than operating so close to tourist attractions that are often in protected areas “just as a marketing gimmick.”

Despite the lawsuits, Nongfu won over enough villagers to complete the factory. The company struck a deal with some of Qiang’s neighbors to pay them 200,000 yuan a year—with a 20% increase every five years—if they promised not to cut down trees and protect the water source in their village, according to a copy of the agreement obtained by Bloomberg Green. Those who didn’t take the money see it as a thinly veiled payoff, because the area is already part of a tightly regulated national park.

Ji Xihua, a 54-year-old restaurant owner, is among the roughly 30 villagers who signed Nongfu’s document. He says the company’s presence has boosted his business. Although some people blame Nongfu’s operations for exacerbating last year’s historic drought, Ji doesn’t see it that way: “That was a natural disaster. What can you do about it?”

Some of his neighbors have a less generous interpretation. “We didn’t have any water in the creek, but Nongfu was still shipping water out, truck by truck,” says one tea farmer, who asked not be named for fear of retaliation. Tea plantation owners say they had to water their trees by pumping water from the rivers for the first time. (Nongfu briefly suspended production at the height of the drought.)

When reporters visited in August, there was hardly enough water in the creek by Qiang’s village to cover larger sand-colored stones in the riverbed, even though the area had just experienced heavy rainstorms caused by a major typhoon. Local law enforcement officers and villagers supportive of Nongfu pressured those who had been critical of the company not to speak to the media. They also blocked the trail to Nongfu’s water-extraction site, saying landslides and poisonous snakes made it too dangerous.

Nongfu says it produces 1 million tons of bottled water a year from the creek, but an environmental impact assessment of the project seen by Bloomberg Green shows it was designed to draw more than double that amount. A significant amount of water is lost during the bottling process; for example, it can leak from pipes or be used for cleaning and cooling machinery.

Wang Shan, who runs a convenience store a block away from Nongfu’s factory, says she worries about her children’s safety, because of the numerous trucks that drive through her neighborhood every day. But her biggest concern is what the vehicles are carrying. “They are taking so much water out,” she says.

Despite the recent alarming droughts, Nongfu is pressing ahead with an expansion at Wanlv Lake, one of China’s biggest man-made basins and the company’s second-largest source of bottled drinks in 2019. Nongfu already has a facility the size of 50 football fields by the shore of the Xinfeng River, a fast-flowing waterway connected to the lake. It recently completed a second building in an industrial zone nearby and is working on a third near the body of water. China Resources Beverage Holdings Ltd., whose C’estbon brand is Nongfu’s biggest competitor in China, is also setting up next door. Amid the furious construction along the riverbank, a billboard declares the government’s intention to develop a “water-based economy.”

Hong Yanhua, a 30-year-old fisherman who grew up by Wanlv Lake, wonders what the impact will be on his village. Almost everything there revolves around what can be caught from the lake. Most people fish for a living, or run restaurants or tackle shops that cater to tourists. Walk past any house, and there’s likely to be fish drying on a shelf under the sun. But Hong hardly caught any fish during the drought in 2021. He took home about 10,000 yuan that year, half his usual earnings, mostly thanks to part-time work in restaurants. On the driest days, the tap water turned muddy for the first time in his memory. Hong says he fears that things will get worse if another dry year comes. “Watching all this development has been very annoying,” he says. “There are too many bottled water companies.”

China requires bottled water companies to conduct environmental impact assessments before building factories, and local governments set limits on how much water can be extracted based on factors including the effect on groundwater levels and downstream needs. Nongfu said in its 2022 sustainability report that it adjusts its consumption plans based on the quality and quantity of water available in the previous year and that it takes climate risks into account. The company carries out water and soil conservation projects, has pledged to cut carbon emission intensity by 20% by 2030 compared with 2019 levels and expects to switch to 100% recyclable, reusable or compostable packaging by 2025. It also gives back to local communities by funding conservation projects and education programs.

But as droughts become more severe, any goodwill that’s been generated is running thin. “This company comes here and makes a profit, without bringing us any benefits,” says Jiang Weigao, 30, who runs a fish restaurant in Hong’s village. “If I want to drink a bottle of Nongfu Spring, I need to pay money out of my own pocket.”

In some ways, backlash comes with the territory of bottling water. There’s something inherently jarring about trapping some of the world’s purest water and shipping it to customers far away. California regulators in September ordered BlueTriton Brands Inc. to stop drawing water for its Arrowhead brand from some springs in San Bernardino after local residents raised environmental concerns. The company said in an email that it’s “disappointed” with the order and will “vigorously defend” its water rights. Communities and activists in drought-hit France have accused Danone SA, the owner of Volvic water, of drying up water supplies. The company said in an email it has implemented measures to reduce the amount of water it draws.

But Nongfu’s business model takes that tension to its extreme, because continued success relies on venturing farther into unspoiled terrain. With greater public understanding of the extreme weather ahead because of climate change and the interconnected effects of environmental damage, there’s less tolerance for exploiting nature than there was when Zhong first started out. When he approached the northern Chinese town of Jingyu to establish Nongfu’s first water source outside Zhejiang in 1999, the upsides were clear. The company built Jingyu’s first railway to transport its bottles and helped to establish a nature reserve to protect the spring it was drawing water from—relocating an entire village of 41 families in the process.

Things changed by 2016, when Nongfu ventured outside China for the first time. The company agreed to buy Otakiri Springs, a small bottled water company in New Zealand named after an aquifer along the country’s northern coast, and won approval to expand its operations. Members of the local Maori tribe, Ngati Awa, filed a lawsuit arguing that the plan would cause irreparable damage to the spiritual life force of the water. News media later reported that the government had actively courted Zhong, fueling public anger over the deal. The legal battle has gone as far as the Supreme Court and still hasn’t been resolved. In the meantime, Nongfu retains the right to extract 1,200 cubic meters of water a day until 2026.

For his next water source, Zhong has set his sights on one of the most gorgeous wonders of the world: the high mountains of Tibet. Nongfu is working to bottle melted glacier water from the Nyang River, a sparkling blue-green waterway that winds through snow-capped mountains where endangered Bengal tigers and red pandas live. Last June, Zhong visited Linzhi, a city of fewer than 240,000 people that sits by the river. Ao Liuquan, Linzhi’s Communist Party chief, pledged at a panel discussion to secure land rights for Nongfu to build an extraction facility that will bottle 500,000 tons of water a year. Zhong said he would work to bring “high-quality economic and social development” to the city and achieve a “win-win” outcome.

Although Nongfu will likely be the biggest business in the region, it’s entering an industry that’s already booming thanks to government support and the premium placed on Tibet’s crystal-clear waters. Officials in Tibet want to turn bottling water into a key economic driver. The local government aims to produce 10 million tons of bottled water a year by 2025.

But the snowmelt that companies such as Nongfu are after could soon start decreasing as the planet keeps heating up, says Lonnie Thompson, a professor of paleoclimatology at Ohio State University who’s studied the region for almost 40 years. The Tibetan Plateau, which feeds the Nyang River, has already lost more than 15% of its glaciers over the past five decades. “It’s going to become a dwindling resource,” he says.

Ma Jun, director of the Institute of Public and Environmental Affairs in Beijing and author of the book China’s Water Crisis, says he worries that the number of companies crowding into Chinese springs and lakes will cause severe environmental damage. But as Zhong has become the country’s richest man, he says, more people are seeking to emulate his success in the bottled water industry.

“Ultimately, water sources are limited,” Ma says. “What we fear is that everybody will swarm in.” — Coco Liu, Luz Ding and Martin Ritchie

While taps in coastal Dakar barely trickle, an investment company uses Senegal’s only lake to irrigate crops it plans to send to Saudi Arabia.

By Peter Waldman, Momar Niang and Katarina Hoije

Photographs and video by Annika Hammerschlag for Bloomberg Green

The Senegal River in West Africa musters its force from 200 centimeters (80 inches) of rain a year in the highlands of central Guinea. The river flows north through Mali, meanders west over a vast, dry savanna and finally empties into the Atlantic Ocean at the Senegalese city of Saint-Louis, the old colonial capital of French West Africa. For centuries, European traders plied the river from there as they procured gold and ivory, animal hides and human bodies.

Now foreign merchants are back, this time for the river itself.

African Agriculture Inc., an investment company based in a ninth-floor Regus co-working space on Park Avenue in New York, is growing 300 hectares (740 acres) of emerald-green alfalfa east of Saint-Louis inside a desert nature preserve called the Ndiael. The farm draws its water from nearby Lake Guiers, which is fed by a canal from the river. The only freshwater reserve in Senegal, the lake supplies half the water for Dakar, Senegal’s capital.

The water isn’t nearly enough. In the wee hours of every night, more than 1 million residents in greater Dakar await what feels like a miracle: a running tap. Nighttime is when water returns to kitchen sinks, if at all. Otherwise, without the money to buy jerrycans or bottles of water from vendors in the street, people have to fill jugs with heavily polluted groundwater from public wells.

On a recent sweltering afternoon, African Agriculture’s irrigation pivots slowly rotated over the glistening alfalfa like the hands of a giant clock, spraying unending streams of water. For now, the high-protein fodder feeds Senegal’s skeletal cows, which could help bolster the nation’s food security. But African Agriculture’s chairman and chief executive officer, Alan Kessler, says its business plan calls for exporting 70% of the crop from the 20,000 hectares it plans to ultimately cultivate to feed more valuable livestock in the Persian Gulf. The alfalfa, at that scale, will consume about twice as much water daily from Lake Guiers as the pumps and pipelines now convey to Dakar.

“And for what? So a foreign company can sell alfalfa to feed cows and racehorses in Saudi Arabia?” asks Ousmane Aly Pame, an English literature professor at Dakar’s Cheikh Anta Diop University, who runs an anti-desertification nonprofit he founded on the Senegal River. “Extracting resources and leaving Africans with no food and no future is exactly what happened in colonial times.”

To finance its foray into forage, African Agriculture is in the process of going public via a merger with a so-called blank-check company on the Nasdaq, in a deal that pegs its value at $450 million, according to filings with the US Securities and Exchange Commission. African Agriculture’s founder and majority shareholder is Frank Timis, a Romanian-Swiss entrepreneur who lives in Switzerland. Over three decades, he’s landed elusive resource concessions, mostly in West Africa, in oil, diamonds, gold and other minerals. His publicly listed companies, many scattered in offshore tax havens, were embroiled for years in controversies over environmental practices, respect for human rights, the accuracy of disclosures and allegations of corruption. Now, Timis has grabbed hold of the aquatic lifeline of one of the driest regions on the planet and is getting ready to test American investors’ appetite for speculating on the project’s development potential.

It’s a parable of the global hunt for profits from climate change. In the past two decades, large food and investment companies have acquired more than 12 million hectares of African farmland. The land-buying spree, stoked by rising demand for food among the world’s growing middle class, has spurred a run on an even more precious resource: water.

The competition for water between cities and farms is intensifying everywhere, as urban areas grow and weather patterns shift on the warming planet. As in war, where the spoils go to the victor, fights over water favor those with capital and connections. The conflict is particularly stark in developing nations that are resource-rich, cash-poor, weak in governance and vulnerable to exploitation. In Senegal, the precarity is alarming. Demand for water in greater Dakar is expected to increase around 300% in the next 25 years, according to a World Bank report last year that concluded the country is moving “dangerously close” to having insufficient water to meet its basic needs in 2050. Twenty-thousand hectares of thirsty animal feed for export can only make matters worse.

CEO Kessler says African Agriculture uses water sustainably and rejects the notion that its expansion threatens Senegal’s water security. “We sit at the end of the Senegal River. The alternative is the water goes out to the ocean,” he says. The company’s public listing could help establish the credibility it needs to access much larger pools of capital to help finance desalination plants in Senegal, among other projects, he adds. Kessler calls Timis “an operational legend” for his projects in Africa and notes that African Agriculture will have to abide by SEC requirements for independent audits, public disclosure and transparency.

In the short term, additional capital will fund African Agriculture’s planned second alfalfa farm on up to 400,000 hectares across the river in Mauritania, he says, and help it fulfill an agreement to plant 1 million trees to generate carbon credits in Niger, using groundwater for irrigation.

“We’re on the runway of opportunity,” Kessler says, from a cafe on New York’s Upper East Side.

Until 40 years ago, the alluvial plain near the town of Richard Toll would flood from opposite directions on the Senegal River at different times of the year. In the rainy season, August through October, runoff from upstream filled Lake Guiers and turned a wide swath of land nearby into a marshy oasis. During the long dry season, the Atlantic tide rolled inland across the flat river delta, inundating low-lying areas with saltwater. Migratory birds loved it. In 1965, Senegal set aside almost 47,000 hectares to create the Ndiael Special Wildlife Reserve, which was later designated a Wetland of International Importance under the 170-nation Ramsar Convention to protect marshlands.

Today dams and levees hold back the ocean and keep the river in its banks. With little floodwater, the wetlands and birds are diminishing. Most of the Ndiael (pronounced en-JIY-el) is dust year-round. Still, the 470-square-kilometer expanse of sand, scrubland, cow dung and the occasional acacia grove is home to about 35 villages. Most of the 20,000 inhabitants are from the Fulani ethnic group, West Africa’s largest nomadic people. They live in thatch-and-cinder-block huts alongside pens for their livestock.

The wetlands shrank from 3,100 hectares in 2003 to only 450 hectares a decade later. Now young women in bright green, yellow and purple leg wraps walk kilometers, sometimes twice a day, to irrigation ditches fed by the lake to wash clothes and fill water jugs they carry home on their heads. Meanwhile, men tending sheep and cows must take their animals much farther for water and forage, often for days at a time, because much of their traditional rangeland is off-limits.

In 2012, President Macky Sall declassified parts of the nature reserve and reallocated the Ndiael—along with its priceless access to Lake Guiers water—to an Italian company, Tampieri Financial Group SpA, which planned to grow sunflowers for export to Europe as feedstock for biofuel. The decree justified the decision on the grounds of “public utility”: expanding industrial agriculture “with a view to sustainable development.” But the Italian-Senegalese sunflower venture, called Senhuile SA, enraged many Ndiael villagers, as it enclosed the reserve inside barbed-wire coils and blocked herders from grazing and watering their animals and growing food. The Ndiael was split between bitter opponents of Senhuile and its supporters, many of whom received free farm plots and access to irrigation from the company.

When the Italians decided to sell, African Agriculture’s Timis moved in. The now-59-year-old investor is far from a household name in this pocket of Senegal. But his ability to unlock natural resources in West Africa is legendary among those who have dabbled in such deals over the past 20 years.

Timis, who didn’t respond to interview requests, was 14 when he fled the Ceausescu dictatorship in Romania in 1978. He went into business in the 1980s in Western Australia providing heavy equipment to the mining industry. He was convicted of selling heroin in Perth in 1990 and 1994. Timis told a London newspaper in 2012 that he’d used heroin but hadn’t sold it. He returned to Romania in the mid-’90s. In 1997 he sold the rights he’d obtained to operate what would have been Europe’s largest open-pit gold mine, the Rosia Montana in central Romania, to Gabriel Resources Ltd., a company listed on the Toronto Stock Exchange that Timis controlled. In 2003 he resigned as chairman and CEO of Gabriel after the exchange found he was “unsuitable” to be a corporate director after failing to disclose his heroin convictions. The mine’s expansion met fierce resistance and was ultimately nixed by the Romanian government.

In 1996, Timis founded an oil exploration company called Regal Petroleum Plc in London. Beginning in 2003, Regal’s shares rose more than 500% in response to positive statements the company made about striking oil in the Aegean Sea. The share gains were wiped out two years later, when Regal, led by Timis as executive chairman, disclosed that the prospect hadn’t panned out—three weeks after Regal had raised £45 million ($56 million) from investors.

Timis resigned shortly before the public learned that he’d agreed to sell Regal’s profitable gas assets in Ukraine without telling the company’s board. After a four-year probe, the London Stock Exchange fined Regal £600,000 for what it called “a pattern of conduct evidencing a reckless disregard” for the bourse’s disclosure rules. Timis wasn’t named in the exchange’s penalty assessment. He told a London newspaper that he would have fought the fine, but the company chose to settle.

By then, Timis was deep into Africa. In Sierra Leone he prospected for diamonds and other minerals as executive chairman of African Minerals Ltd., another London company. In 2014, when the company was ramping up production of its massive Tonkolili iron mine, ore prices plunged 50%. Chinese creditors foreclosed on the $2.5 billion mine the next year. African Minerals, worth about $3 billion at its 2011 peak, entered into administration.

Struggling to stay afloat in Africa, an Australian-listed company associated with Timis, International Petroleum Ltd., fell behind on more than $1 million in exploration fees owed to the government of Niger in 2014. Niger officials demanded the money, but IPL’s newly appointed CEO, Alex Osipov, disapproved of paying them in the manner to which they had evidently grown accustomed: in $50,000 wire transfers to a mysterious law firm in the island tax haven of Jersey and $10,000 wads of cash, hand-dropped at the Official Journal of the Niger Republic gazette, ostensibly to pay for publishing public notices, according to evidentiary documents that were filed in the UK Employment Tribunal in London.

To restore the company’s relationship with Niger officials, Timis enlisted a longtime Russian adviser in West Africa, Sergey Matveev. According to emails produced as evidence at the tribunal, Matveev helped orchestrate Osipov’s ouster after the director general of Niger’s oil ministry said he no longer wanted to work with him. In 2015, Osipov filed a whistleblower suit, claiming Timis had fired him for trying to stop illegal activity, including bribery. The tribunal judges ordered Timis and another executive to pay Osipov more than £1.7 million. Timis’ lawyer in the case argued that Osipov’s statements didn’t constitute legally protected whistleblower disclosures. Matveev declined to be interviewed. Osipov, through his lawyer, declined to comment.

By 2011, Timis was dabbling in Senegal, through a new Cayman Islands-based entity called Petro-Tim Ltd. That year a Petro-Tim executive in Hong Kong wrote a letter to the son of Senegal’s then-president, Abdoulaye Wade, expressing interest in developing two of Senegal’s most promising offshore natural gas blocks. The son, Karim Wade, Senegal’s minister in charge of aviation, infrastructure and energy, instructed the national oil company, Petrosen, to contact Petro-Tim about research permits. Three months later, Petrosen signed two production-sharing contracts with Timis’ company, countersigned by the president and his son. After voters swept the Wades from power the next month, an investigation President Sall ordered found irregularities with the deal, including a lack of due diligence. Ultimately, Timis went into business with the new president’s younger brother, Aliou, and was allowed to retain the new offshore energy projects. He sold them off in 2014 and 2017 for $650 million, plus royalties, according to Reuters and the British Broadcasting Corp.

Senegal erupted in protest after Timis’ relationship with the president’s brother was profiled in a 2019 BBC documentary. In response, Timis issued a statement saying there was “no wrongdoing whatsoever.” A subsequent judicial investigation in Senegal was dismissed for lack of evidence. Aliou denied wrongdoing and resigned as head of a state financial institution. President Sall’s spokesman at the time, El Hadj Kasse, told the French channel TV5 that Aliou did receive a $250,000 payment from Timis after the offshore concessions were sold, but it was for a purpose unrelated to oil. The money, said the president’s spokesman, was paid to an Aliou company called Agritrans for something else: agriculture.

Timis turned to the Ndiael. In 2018 one of his companies based in the Cayman Islands bought out the Italians’ 50-year rights to 26,000 hectares of the nature reserve for $8 million. Three years later, African Agriculture was incorporated in Delaware, and it now oversees the project. Timis renamed it Teranga Farms, adopting a Wolof word that describes unstinting hospitality, a core Senegalese value.

Timis brought in Matveev as a small investor in the company and an administrator of African Agriculture’s subsidiary in Niger. For development and fundraising help, Timis recruited Kessler, a native of South Africa who early in his career worked on Wall Street and helped several investment companies raise more than $1 billion for oil and gas projects in Africa. The company hired advisers from the US and Europe on desert cultivation and signed consulting contracts with Louisiana State University and Michigan State University to develop local agricultural extension programs. And African Agriculture paid to produce a 27-minute documentary that aired on CNBC Africa extolling Timis’ vision for the Senegal project.

Still, Timis planted in the Ndiael before residents and even key government officials had any clue his company was there. Adama Gaye, the government’s chief environmental regulator for Lake Guiers, learned about Timis’ alfalfa plantation only when Bloomberg Green recently asked him about it. Same with Mamadou Balde, Senegal’s chief of environmental assessments, who says the company should have notified the environment ministry of the change of ownership and purpose and applied for a certificate of environmental compliance but never did.

“It was very murky,” says Mbaye Cisse, a human-rights lawyer who spent years trying to confirm the Ndiael’s buyer for a land-grab complaint he filed with Senegal’s anti-corruption office, which remains pending.

The alfalfa farm “is in good standing with the environmental ministry according to local rules,” wrote Kessler in an email, citing Senhuile’s 2013 environmental impact assessment for its original sunflower plan.

Many of the herders whose forebears have roamed the Ndiael for centuries were also flummoxed. The barbed wire around the privatized parts of the nature reserve has been mostly replaced by trenches to keep out the animals. But herders now have to contend with African Agriculture guards who hold trespassing livestock for ransom. “We are in a state of powerlessness to face these people,” says Amadou Ba, 68, chief of the small settlement across the road from the alfalfa fields that’s had several goats impounded this year.

Teranga Farms is plowing ahead. Its pilot plots are producing alfalfa with almost 25% protein, three points higher than what’s considered high-grade. From the early success selling the forage in Senegal, Kessler says he’s looking at a West African feed market that reaches from Morocco to Ivory Coast. He’s also talking to the agriculture minister of Eswatini about boosting cotton production there while fielding inquiries from across Africa for other “precision” farming projects to improve agricultural efficiency, he says. As it stands, the productivity of Africa’s farms is less than 10% of that of Europe and North America, a big reason the continent has relied so heavily on fertilizer and grain from eastern Europe. “If we can get that to 20%, Ukraine and Russia won’t matter to global food security,” Kessler says.

Africa is only the beginning. The bigger prize is Wall Street. African Agriculture’s planned listing is a deliberate play on water scarcity. In the merger prospectus it filed in May with the SEC, the company’s blank-check merger partner, also known as a special-purpose acquisition company, or SPAC, points to two related trends: the megadrought in the American Southwest, which has crimped alfalfa output in the US, the world’s largest supplier; and Americans’ increasing worries about using diminishing resources to irrigate water-intensive crops for export.

Saudi Arabia was the third-largest market for US alfalfa hay last year. After decades of lavish government subsidies, the Saudis had succeeded in tapping enough groundwater beneath their own desert to turn the beige sands green with alfalfa fields. They cultivated enough meat, milk and eggs not just for domestic consumption but for export as well.

About a decade ago, realizing they were spending petrodollars to blow through fossil aquifers that had taken millions of years to fill up, Saudi Arabia started banning the cultivation of water-heavy crops such as alfalfa. In a domino effect, starting in 2014, food companies from Saudi Arabia and the UAE set up alfalfa farms in California and Arizona to tap US groundwater and the Colorado River. In the past decade, US alfalfa hay exports to Saudi Arabia have soared more than 1,500%, to about 300,000 metric tons last year.

Kessler says African Agriculture, at full production, will ship 350,000 tons of Senegalese alfalfa to Saudi Arabia and the UAE, supplanting much of what the two countries now buy from the US. A lot of those US exports come from the drought-ravaged Southwest, where, as part of the seven-state Colorado River agreement in May, the Biden administration has set a lofty new price for water buybacks from farmers.

African Agriculture is offering a shrewd hedge: Use Senegal’s water. In the prospectus, the company says the water from Lake Guiers costs only 5% of what water in Europe and the US does. Also, the shipping distance from Senegal to the Persian Gulf is half of what it is from California. Cheap water is a huge advantage. “African Agriculture believes that access to abundant and inexpensive water will remain an uncompromising barrier to entry for its competitors,” its prospectus claims.

In fact, African Agriculture was extracting water from Lake Guiers at an unbeatable cost. According to Amadou Silly Ba, accounts director for the Organization for the Development of the Senegal River, the intergovernmental organization that manages the river for its four riparian states, the farm responded to the agency’s repeated letters requesting payment only in August, after Bloomberg Green contacted him. That means African Agriculture took water for two years before paying for it, Ba says.

In an email, Kessler said, “We are in good standing with the water company and are current on our payments” as of the agency’s latest invoice.

Only 35 kilometers long, 11 kilometers wide, and 2 meters deep, Lake Guiers is merely a shallow depression in the river’s seasonal flood zone. Local fishermen set their nets from canoes. Most of the few dozen villages on the lake are poor, and life feels languid in the steamy heat, except on the southwest shore, where big concrete treatment plants and pump houses whir the water to Dakar.

The canal that feeds the lake branches south from the Senegal River at Richard Toll, crossing a wide flood plain planted with sugar cane that’s owned by the French-Swiss billionaire Jean-Claude Mimran. It drains into Lake Guiers, though you’d never know it. The shoreline is so overrun with vegetation, the water disappears.

The source of the lake’s sclerosis lies in plain sight. Wastewater from the cane fields is pumped by the Mimran Group’s Senegalese Sugar Co. directly into the lake, which exceeds water-quality standards for pesticides, heavy metals and bacteria, the World Bank found in last year’s report, which named the sugar company as “one of the major sources of pollution.” The water is so laden with nitrates and other fertilizers that invasive plants now cover 30% of the lake. Schisto worms thrive in the overgrowth, making Lake Guiers an epicenter of the disease schistosomiasis, which infects humans’ kidneys, bladder and rectum with parasitic worms. Senegalese Sugar complies with national regulations, says spokesman Khassim Faye.

At completion, African Agriculture’s alfalfa farm will be twice as large as the sugar cane plantation.

Although alfalfa doesn’t require nitrogen fertilizer, it does need plenty of phosphorus, a nutrient that plagues Lake Guiers at about twice the US Environmental Protection Agency’s recommended limit. For now, the company’s irrigation pivots and sprinklers minimize water use and runoff, and alfalfa is known to filter some contaminants in irrigation water, leaving runoff cleaner. Still, drainage from the alfalfa fields could increase substantially if seasonal rains become more torrential, as climate experts predict.

Down the road from Teranga Farms, the village of Toleu is wedged between the edge of the lake, the sugar cane fields and the alfalfa farm. It abuts the Tocc Tocc Community Nature Reserve, co-founded by Ndiaga Boh, the village chief, to preserve habitat for the Adanson’s mud turtles and threatened West African manatees that inhabit the lake. Boh says he’s worried the lake and his village won’t survive another industrial farm. Fish from the lake, a main source of local protein, are shrinking in size and number, he says. Eight out of 10 kids in the area have contracted schistosomiasis. When a community loses its health, it dies, he says. “If they plant 20,000 hectares of alfalfa, this reserve will disappear.”

The specter of drought looms. Climate models predict increasing precipitation in the Senegal River Basin in the near term but a decline of as much as 25% in the second half of the century. People around Lake Guiers vividly describe the shriveled fish and manatee carcasses on the sunbaked lake bed during the extreme drought of the 1970s. Although alfalfa can survive with less water and reduced yields, another extreme drought could drain the lake in only 20 months, according to Djiby Sambou, a native of Richard Toll who wrote his 2017 doctoral dissertation about the impact of climate change on Lake Guiers. “It’s getting much worse than I anticipated,” says Sambou, who works as an environment officer for the United Nations. “This lake cannot support all the new demand.”

Lake Guiers’ troubles stretch to Greater Dakar, 260km away. There, the struggle for water afflicts as many as 2.5 million people, particularly in the districts on the city’s periphery, where water shut-offs occur almost daily, says Seynabou Cisse Faye, head of the geology department at Cheikh Anta Diop University. These are some of the capital’s most populous neighborhoods, and its poorest. Even when the plumbing works, Dakar’s tap water, composed of both groundwater and water from Lake Guiers, is unhealthy. To avoid diarrhea, which kills 40,000 children a year in Senegal, officials advise giving only mineral water to babies until they’re 6 months old, preferably longer.

Behind an outdoor market in the neighborhood of Tivaouane Peulh, goats and scrawny chickens pick through trash while women wash dishes at an open well. The local Thiaroye aquifer supplied almost half of Dakar’s water in the 1980s, largely in the eastern districts. But that’s plunged to only 5% because of nitrate contamination from raw sewage. With help from Japan, Senegal is building a desalination plant in Dakar and discussing another one. But reliance on Lake Guiers and the Senegal River is only increasing. A planned fourth Dakar pipeline would boost the city’s extraction from the lake by more than 50%, raising the stakes for the water body’s health even higher.

In the heart of the city, historic Medina, water scarcity is omnipresent. Khadidja Ngom, 24, makes her living washing clothes by the roadside. On a recent day, she squeezed soap from wet shirts and trousers, hanging them to dry along the street. She makes several walks a day to the communal tap where she pays 25 CFA cents (4¢) to fill up a 10-liter bucket. The neighborhood often goes without water for days. “We’re used to water being scarce here,” Ngom says. “It becomes even more evident when you rely on it to make a living.”

That scarcity can lead to conflict. Babacar Ndiaye is the 80-year-old chef de quartier in Medina. One of his jobs is to mediate disputes among residents forced to share communal taps, especially when someone hogs buckets of water and leaves the tap dry. In buildings where people share one faucet, residents who don’t contribute to the bill find a padlock on the tap.

People in Dakar have learned to be patient. On a recent day in her home, Aissatou Sow recounts how, on the night before her youngest daughter’s wedding, she waited hours for the tap to go on. She had no way of knowing if there’d be enough to make rice for everyone. At 3 a.m. a trickle arrived. Then a splash. Finally a gush. “There was no Plan B,” Sow says.

Based on World Health Organization benchmarks, a typical Dakar household of eight needs 12,000 liters of water a month, which costs about $48 at kiosks and private pumps. That’s almost half the monthly minimum wage in Senegal and almost 10% of a typical middle-class monthly income. To many, the price simply isn’t affordable. Money isn’t a problem for the Saudis and Emiratis eager to buy Lake Guiers alfalfa. “They’re calling us all the time,” Kessler says, “asking, ‘What can we do? When can we have it?’ ”

Illustrations: Jun Lin

Page design: Somnath Bhatt

Editor: Lauren Etter

BlueTriton Brands owns Poland Spring, Arrowhead and other bottled water brands. As it tries to grow, experts worry sensitive springs, creeks and groundwater supplies from Florida to California are paying the price.

By Laura Bliss

Ginnie Springs is a true Florida oasis. Ringed by towering cypress trees, the spring-fed pools off the Santa Fe River in Gilchrist County draw thousands of visitors every year to swim and cool off in their turquoise waters.

It’s also big business. For years, a local operator has been pumping the water to sell to bottlers, despite evidence of declining flows. Years of extraction have led the water district to label the lower Santa Fe River basin as “in recovery.”

“There’s way less vegetation. The river has shrunk. You don’t see as many turtles. You don’t see as many fish,” said Ryan Smart, executive director of the Florida Springs Council, an advocacy group that fights to limit bottling. “It’s like watching a family member get sick.”

Yet the business, Seven Springs Water Co., keeps taking more. In early 2021, Seven Springs won the right to withdraw close to a million gallons per day. (Seven Springs did not respond to a request for comment.) In the past, the company had usually pumped about a quarter of that volume. But Seven Springs had a new customer, Nestlé SA, which had recently purchased a nearby plant producing Zephyrhills branded bottled water, a ubiquitous presence in Florida grocery stores. To keep up with demand, Nestlé was expanding the facility, with plans to increase production equal to the permit’s full amount.

That same year, Nestlé sold Zephyrhills — and most of its other North American bottled water brands — to a pair of private equity firms. Operating under the name BlueTriton Brands, Inc., the new owners now control a large share of the bottled water sold in the US, including Poland Spring, Arrowhead and Deer Park.

In its nearly three years since entering the business, BlueTriton has made good on its permit at Ginnie Springs, according to public water use reports obtained by Bloomberg Green. In 2022, close to 115 million gallons of water flowed through the pumps at Ginnie Springs, up more than 37% from 2020, the year before the acquisition, records show. They’re on track to take more in 2023. A Bloomberg Green investigation found that from 2020 to 2022, pumping increased at other BlueTriton sources in at least six states: Florida, Maine, Colorado, Michigan, Texas and South Carolina.

Not all of BlueTriton’s springs around the US are being squeezed tighter than before; at some, usage has been flat or gone down. In many cases, including at Ginnie Springs, the company is still taking less water than local permits allow.

Yet BlueTriton’s reliance on springs, as well as its private equity ownership, has drawn the attention of researchers and activists who question its stewardship of resources. Other major players in the bottled water industry, such as The Coca-Cola Company and PepsiCo Inc, rely largely on what is effectively tap water to fill their product lines, paying municipalities for water that they then purify. While BlueTriton also draws from public supplies for some of its offerings, many of its best-known brands bottle from springs, natural features that tend to be located in sparsely populated areas where water is often virtually free.

While BlueTriton’s increased water use at individual springs is legal, these fragile ecosystems can be uniquely impacted by pumping. A report by Florida’s environmental agency in 2021 showed that while bottling consumes far less water than other industries such as agriculture, it shrinks spring flows disproportionately because it takes water so close to the source.

Longstanding concerns over the bottling industry have increased as rising temperatures dry rivers and pumping drains aquifers around the world. Regulators and lawmakers across the US have moved in recent years to rein in bottling. In 2021, Congress directed the US Geological Survey to study the growing industry to better understand its effects on watersheds. Many of the springs that will receive individual scrutiny in the agency’s study are operated by BlueTriton, including Ginnie Springs.

Laura Krueger, director of external communications at BlueTriton Brands, said as the company has ramped up pumping, Ginnie Springs remains healthy. More broadly, she said, the company has a team of geologists and engineers who manage springs for sustainability. She said BlueTriton is working with the USGS to provide data for its investigation.

“Responsible and proactive water resource management is central to our company and is a core reason why BlueTriton and its predecessors have been able to source water from some of our springs for more than 150 years,” she said.

Some of the company’s actions follow a more modern playbook. Private equity firms are well known for buying underperforming assets, restructuring them and quickly selling them at much higher prices to maximize profits. Cost-cutting measures such as lay-offs are par for the course, and BlueTriton has followed suit. While this strategy has played out for decades in just about every industry in America, from auto-parts manufacturers to toy stores to hospitals, BlueTriton is now extracting value from some of nature’s most sensitive watersheds.

In addition to dialing up water use from springs across the country, the company is deploying lobbyists and lawyers to battle regulators that stand in their way. In Maine, the company lobbied to derail a proposed law that would have put limits on its water purchase agreements with local governments. In California, legal experts say the company, like bottlers before it, is avoiding regulation by taking advantage of uncertainties in state water law.

“At BlueTriton, we respect and follow all state laws and regulations,” Krueger said.

But the laws are, in many cases, easy to work around, said Richard Frank, director of the California Environmental Law & Policy Center at the University of California at Davis. “Springs fall between the cracks of California water rights law,” Frank said. “BlueTriton and its predecessors have been a textbook example of how to exploit those ambiguities or pursue outright violations of existing water rights law.”

In 1964, a local businessman named Don Robinson started bottling the water supply of his small city in central Florida. He also borrowed its name. That was the start of the Zephyrhills Spring Water Company, which was purchased in 1987 by the Perrier Group of America, which soon after became a subsidiary of Nestlé. Nestlé later turned its attention to the wealth of artesian springs across Florida as it built out the Zephyrhills brand, quenching America’s growing thirst for packaged products.

But bottled water — especially the kind that gets sold in large cases of plastic containers — is a low-margin operation. Sourcing, production and warehousing all cost money. Companies can only charge so much before consumers turn to their taps.

In 2021, amid slowing demand in recent years and competition from private label producers, Nestlé sold most of its North American water brands, including Poland Spring, Pure Life and Arrowhead, for $4.3 billion. The company said that it planned instead to focus on premium offerings like Perrier, Sanpellegrino and Acqua Panna, which it retained.

The buyers were the private equity firms One Rock Capital Partners and Metropoulos and Co., which took out billions in debt to finance the purchase amid a rush of leveraged buyouts delayed by Covid-19. Metropoulos and Co. was founded by Greek-American billionaire C. Dean Metropoulos, whose family empire has snapped up countless brands and distressed assets over the decades, including Pabst Blue Ribbon, Morton Salt, and Chuck E. Cheese. It was one of the funds behind the 2013 purchase of Hostess, the bankrupt maker of Twinkies, which was sold a few years later, earning Metropoulos and its partners a return of nearly 13 times their original investment.

As is common after buyouts, the new company employed a fraction of the workers who’d lost their jobs in the bankruptcy. Krueger of BlueTriton said that under Metropoulos’ leadership, Hostess invested millions of dollars into upgrading plants and improving working conditions for employees.

Whether Zephyrhills or Poland Spring will produce as much profit as Twinkie is yet to be seen. At BlueTriton, multiple rounds of layoffs after the takeover affected hundreds of workers. Environmental sustainability projects were sidelined after the acquisition to make way for streamlining efficiency and maximizing profits, according to three former employees. “It was all about making money,” said Niki Price, who worked as a senior project manager in packaging and engineering until leaving in October 2022. (Krueger said that BlueTriton's investments in sustainability measures have been at or above previous levels and that it has completed $745 million in capital projects since 2021.)

Driving $46 billion in annual revenue, bottled water has been the top-selling beverage in the US for the past six years, according to the Beverage Marketing Corporation. It’s a mature industry, with sales projected to grow in the single digits through 2030.

But BlueTriton has faced headwinds. In March, Moody’s Investors Service downgraded the company’s credit rating, describing BlueTriton’s financial policy as “aggressive.” It cited the additional debt BlueTriton has taken on to deliver profits to investors, such as a round of shareholder payouts at the end of 2021 financed by a loan of $250 million. Increasing volume is one way for the company to grow value, but that's been challenging: A series of price hikes drove up revenue for BlueTriton in 2022 and early 2023, but in keeping with an industry trend, sales have slowed in recent quarters, according to a September report by S&P Global Ratings that gave the company a ‘B’ rating.

Water use data for individual companies is difficult to come by. Diversions from springs and groundwater sources aren’t uniformly regulated across the US. Bloomberg Green contacted 33 federal, state and local agencies to request water use data for 40 locations advertised by BlueTriton as sources of its bottled spring water. In some cases, agencies did not respond; in several cases, no data was publicly available. Krueger of BlueTriton said that consumer demand drives withdrawals from individual sources, and that the company adjusts collection levels to balance water resources.

What records were available show that, in several parts of the country, BlueTriton is stepping up its water use. Across the 10 springs in Maine the company uses as sources for Poland Spring, total water use has steadily increased in recent years, rising 6% from 2020 to 2022. At Moffit Spring in Walker County, Texas, one of BlueTriton’s sources for Ozarka, the company pumped 23% more water in that time frame. At Ruby Springs in Chaffee County, Colorado, a source for Arrowhead, it took 37% more water.

Few scientific studies have examined the ecological impacts of diverting springs for bottled water. Jill Culora, vice president of communications for the International Bottled Water Association, disputed the notion that bottled spring water depletes resources from sensitive ecosystems. “When choosing a spring water source, bottlers spend time and resources to ensure the source has excellent water quality, is well protected from pollution sources, and has sufficient volume while not affecting the rights of other users,” she said.

The growth of bottled water and its increased demands on nature prompted the US Geological Survey in 2021 to open an investigation into the scope of the industry and its effects on local watersheds. As part of the research, the agency is collecting water use data for bottling facilities across the country. USGS planning documents obtained by Bloomberg Green show that Ginnie Springs is one of the areas of study, which will begin by collecting water use and hydrological data in order to eventually assess bottling’s impacts there.

“Over the past few decades, many of Florida’s springs have been declining in health,” one USGS document states. “Sufficient data are needed to evaluate the effects that pumping of the aquifer by water-bottling facilities have on springs — or that withdrawals from springs by such facilities have on the health of spring-fed rivers — to preserve these valuable natural resources.”

Another focus area for the study will be Southern California, where “the high density of bottled-water facilities… sourced mostly from spring flow, has the potential to alter already affected groundwater-surface water interactions in the region, reducing streamflow and affecting water quantity and quality for both human and ecological uses.”

Cheryl Dieter, a USGS hydrologist who is coordinating the research, declined to comment on unpublished results. Culora also declined to comment. Krueger said BlueTriton welcomes USGS’ examination.

In September, California’s State Water Resources Control Board adopted a cease and desist order requiring BlueTriton to stop diverting approximately 80% of the water the company had historically taken from a set of springs along Strawberry Creek in the San Bernardino National Forest. Originally prompted by public complaints in 2015 over Nestlé’s withdrawals during a period of drought, the state undertook a multiyear investigation and ultimately determined in 2023 the company had no right to most of the water. BlueTriton is now challenging that decision in court.

Experts say the ruling casts a spotlight not only on the environmental impacts of bottled water production, but also on how BlueTriton and its predecessors have taken advantage of weak regulations and uncertainties in California law. Bloomberg Green found that several other BlueTriton water sources in California are also unpermitted by the state water board, the authority tasked with overseeing surface water.

BlueTriton said it is “confident in the water rights for collection at every spring we use for our bottled water.”

California water rights are infamously complex. Surface water, such as rivers and streams, is regulated by the State Water Resources Control Board. There are some exceptions, but most surface water users that move water from streams connected to their lands are required to obtain permits with the state water board.

Groundwater, on the other hand, is largely unregulated. In much of the state, land owners are allowed to pump what is considered “percolating groundwater” (i.e., water that filters down through the soil on a path of least resistance) without anyone’s approval. The Sustainable Groundwater Management Act, the state’s first attempt to regulate groundwater, has yet to be fully implemented since its passage in 2014, and its impacts remain unclear.

Officials at the state water board said the issue makes the broader bottling industry a challenge to regulate.

“Even though they’re taking and selling what they market as spring water, because they’re characterizing it as a groundwater well, they have not reported it to us,” said Kenneth Petruzzelli, a state water board attorney in the office of enforcement who prosecutes water rights violations, referring to bottlers in general.

The investigation into Strawberry Creek, which began when Nestlé owned Arrowhead, demonstrated the challenge with regulating springs, areas where water naturally bubbles to the surface from an underground aquifer. High in the San Bernardino National Forest, Strawberry Creek splits into two streams. Its spring-fed western fork is largely desiccated, with a few puddles dribbling through the brush.

Prior to the 1930s, when bottlers started pumping large quantities of water, the currently dry creek was a perennial stream, flowing even during the warm summer and fall months, said Amanda Frye, a local activist who has spent years trying to hold the industry accountable.

“Arrowhead dried out the Strawberry Creek watershed, tapping and stealing water one spring at a time,” she said.

BlueTriton, like its predecessors, doesn’t have a permit to divert the water. During the state’s inquiry, the company maintained that what it was taking was groundwater, and therefore not subject to the state’s authority.

The state disagreed, determining that the spring flows that feed Strawberry Creek were, in fact, surface water.

In October, BlueTriton sued the board. In a statement, the company said the ruling “creates water rights uncertainty and negatively impacts every water agency and farmer in California that relies on groundwater, and in doing so, indirectly harms every Californian.”

Several other springs that appear to fall under the state’s jurisdiction are going unmonitored. Sopiago Springs, for instance, sits near the top of Sopiago Creek in El Dorado County, surrounded by national forest. It is advertised as an active water source on the Arrowhead website and its outflow is collected on land owned by BlueTriton, according to county records. Yet there is no permit with the state — and no way to account for how much water is being trucked away.

Comparing Sopiago Springs to Strawberry Creek, “it looks to be very much the same situation,” said Holly Doremus, a professor of environmental regulation at the University of California at Berkeley. “It looks like it needs a diversion permit.”

BlueTriton disputed that. “Water collected from Sopiago Springs is groundwater,” the company said. It also denied any harm to Strawberry Creek.

Due to classification challenges and other complexities, proving violations of California water law can take years, with the burden of proof largely falling on the party trying to change the status quo. It’s a bottom-up system leading to significant quantities of water going unsupervised and untracked, Doremus said.

“In a state where water resources are limited and are likely to become even more so with climate change,” she said, “that is obviously a problem.”

Calls for greater scrutiny are rising. In March, a UN think tank released a report calling for stronger regulations on bottled water as groundwater supplies dwindle across the world. The report found that the industry’s growth is undermining progress towards universal safe drinking water access by “redirecting attention to a less reliable and less affordable option for many, while remaining highly profitable for producers.”

The International Bottled Water Association disputed the report and the assertion that bottled water withdrawals contribute significantly to groundwater resource depletion, saying companies use an extremely small amount of water. In a statement, the group said: “Bottled water companies do not drain aquifers and/or surface waters or use more water than can be replenished.”

So far in Florida, efforts by lawmakers and activists to rein in BlueTriton haven’t panned out. In October, a judge upheld the water use permit allowing the company to bottle more water from Ginnie Springs, rejecting a legal challenge by Florida Springs Council that argued it wasn’t in the public interest. Smart, the group’s executive director, said their fight would resume in 2024. Eventually, he also hopes to persuade legislators to establish water use fees, which he thinks would force industry users to cut back and help with restoration.

In the US, water rights experts have advised states to step up their oversight. Frank and Doremus, the California water law experts, are part of a group of reformers proposing legislation that would give the state water board stronger tools to enforce violations, including heavier fines and more power to stop illegal diversions. For Frank, the growing influence of private investors on the state’s limited supplies — both within bottling as well as in water rights trading — demonstrates why such reforms are “long overdue.”

“It is an issue of accountability and transparency,” said Frank. “For these bottling companies, it’s the wild, wild west.”

Edited by Emily Biuso, Lauren Etter, Amanda Kolson Hurley

Photo edited by Marie Monteleone

Data visualization by Elena Mejia