PHOENIX — Gov. Katie Hobbs on Tuesday defended the decision to strip a Saudi company of its right to lease state land to farm alfalfa for export — and get the water underneath it free — but had no answers to what will become of the nearly 3,500 acres after that.
Hobbs rebuffed questions of whether she intends to leave the land now being farmed by Fondomonte Arizona in the Butler Valley in La Paz County fallow and lease free.
That would mean lost revenues for the state land trust.
But it wouldn’t be much: The Land Department says annual payments by Fondomonte were just $76,000 a year — which works out to $21.60 an acre.
The alternative is to lease the property to someone else for farming. But any agricultural use would have to include the ability to pump groundwater, the very thing the governor said she found offensive about the lease to Fondomonte.
“The state Land Department is going to be doing a reclamation study to see how we can best use the land and make sure that the beneficiaries of the state land trust are getting the full benefit of that,” the governor said.
But Hobbs acknowledged it’s not that simple.
“The responsibility of the state Land Department is to get the highest value of the state lands for the beneficiaries” of the trust, she said. “And so that’s what we’re focused on there.”
That generally means getting the maximum financial return. And that leaves the question of whether that means the Land Department, looking for a new tenant, would be required to take a higher bid from someone who plans to farm alfalfa than someone else growing a less water-intensive crop.
“I’m not going to address hypotheticals,” Hobbs responded. “We’re going to study the best use of the land, make sure we’re getting the best value out of it, and work to protect Arizona’s groundwater, which was a big part of this whole issue.”
There’s also the fact that the Fondomonte lease she is terminating is just a small fraction of the 157,439 acres of state land now being leased for agriculture, much of that with the right to pump the water beneath it for no additional fee.
And the state is getting an average of less than $28 an acre.
“I’m not going after agriculture,” Hobbs said.
And she said the Fondomone leases being terminated are different because the Butler Valley is a “transportation basin,” an area where state law actually allows water to be moved away from the area, presumably for use by cities.
There actually are five transportation basins in the state. But the governor’s office had no immediate answer to how many acres of state land are being leased within those basins for agriculture.
What brought the whole issue to the forefront was the announcement Monday by the Land Department that Fondomonte was in breach of one of its leases of 640 acres because it had failed to install a secondary barrier around fuel stored on the property as promised in 2016. That, the agency said, gave it the power to terminate the lease with 30-day notice.
But the agency also announced it was not going to renew Fondomonte’s ability to lease the other 2,880 acres when the current contracts expire in February. The governor’s office said the Land Department determined that the leases in the Butler Valley are “not in the best interest of the (land) trust’s beneficiaries due to excessive amounts of water being pumped from the land — free of charge.”
Fondomonte spokesman Barrett Marson disputed that the company was in breach of the lease, saying it has “done everything required of us under these conditions.” And he said the company intends to appeal.
But he also raised the specter that this was about more than the alleged breach.
“Fondomonte will explore all avenues to ensure there is no discrimination or unfair treatment,” Marson said.
His client is a division of Alamari Co., a multinational dairy firm headquartered in Riyadh, Saudi Arabia whose most recent report lists net profits of $474 million. And the state has generated unfavorable publicity about how its land and water were being used, with minimal payments, to grow alfalfa to ship overseas to feed cattle in a country that prohibits farming of such a water-intensive crop.
“This is not about the foreign-owned business,” Hobbs said. “This is about protecting Arizona’s groundwater and getting the best value of the land for the beneficiaries.”
The governor also said Fondomonte is not being singled out.
“We’re doing due diligence across the board with all state land leases to make sure that that’s what’s happening,” she said. “And we’ll continue to do that.”
Christian Slater, Hobbs’ press aide, said the state is sending “notification of potential default to other leaseholders that were investigated. He cited four other leaseholders — including another Fondomonte property elsewhere in La Paz County — who he said have between 45 and 60 days to cure the problems, though he did not say what inspectors found.
There is a related issue that farmers in many areas of the state — both leasing state lands and those who own their property outright — are pumping unlimited quantities of groundwater. They are located outside “active management areas” which are primarily in rural areas where there are no limits to how much groundwater can be withdrawn.
Hobbs had no answer to what she believes should be done about that.
“That is the purpose of the Water Policy Council,” Hobbs said, referring to the panel she formed in January which is supposed to look at the state’s 1980 Groundwater Management Act and its exclusions for most rural areas.
The governor’s premise that Fondomonte needed to be singled out, not only for cancellation of one lease but also for not renewing the others, is going to get a fight from the company.
“All we ask is to be measured according to the same standards as every other farming leaseholder on state land,” David Kelly, the company’s general manager, said in a prepared statement to Capitol Media Services.
He claimed that Fondomonte has developed the Butler Valley site to be “one of the most efficient and highly productive farms in not only Arizona, but the entire Southwest.” And Kelly said the operation uses “best-in-class irrigation technology and equipment” with oversight of an experienced management team.
“This farm should be heralded for its water efficiency, and has invested in these improvement in a way that few other state land leaseholders can match,” he said.
But the state, at least for the purpose of canceling the 640-acre lease, said all that’s irrelevant. What is relevant, the Land Department said, is the alleged breach.
Robyn Sahid, the executive deputy land commissioner, said Fondomonte was notified in 2016 that it was in default on that lease because it had failed to ensure that “motor fuels or regulated substances shall be stored in secondary-contained above ground tanks.” She said the company responded days later it would implement the required secondary containment.
But an inspection conducted two months ago “revealed that fuel storage tanks remained in roughly the same location as was found” during the 2016 inspection.
“Accordingly, the default relating to secondary containment for fuel storage tanks has not been cured, and the time for during the default has long since expired,” the notice issued Monday states. And it is effective in 30 days, enough time for the company to appeal.
The action against Fondomonte is separate from a decision by the Arizona State Retirement System to divest itself of ownership of other private land in western Arizona being used to grow alfalfa for export. Attorney General Kris Mayes called the idea of investing in a farm that exports alfalfa “as outrageous as it is stupid given the current state of our water crisis.”
