FRESNO, Calif. - Agricultural lending in central California's San Joaquin Valley, with its more than 250 crops, from cotton to nuts to vegetables, has been a whole new world to a farm lender originally from Iowa.

"The diversity is just amazing here, compared to other agriculture areas in the country," said Tom Stenson, senior vice president of Fresno-based Valliwide Bank, who heads the company's agribusiness group. "The only limiting factor is water."

Water, clearly, is something agricultural lenders cannot take lightly in the West, where irrigation is king and rainfall limited. If farm customers don't have an affordable plan to procure water, their business is a no-go.

"This area would be a desert without irrigation," said David Pruitt, a customer of Mr. Stenson's who manages 2,000-acre Santa Rita Ranch in nearby Merced County.

California farmers get their water from two sources: underground wells on site and surface delivery systems controlled by the state's numerous irrigation districts. Farmers historically have had long-term contracts with the government for water rights through these districts.

When lenders evaluate a prospective farm loan, water sources and costs are among their top questions.

"It is always a major concern to anybody here in California who is a lender," said Michael C. McFadden, assistant vice president of $50 million- asset Kings River State Bank, Reedley, Calif., whose agricultural customers mainly grow fruit trees and grapes. "We need to see that they've got water. Without water, they're dead."

Speeding by the fruit and nut trees lining the highways of the western San Joaquin Valley, Mr. Stenson explained how his $1.2 billion-asset bank and other western agricultural lenders deal with the water issue when evaluating loan requests.

Lenders want to know where the operation is located, the source and cost of its water supply, and any past water problems, particularly during the seven-year drought that lasted through the 1993-94 growing season.

He or his department's other six agricultural lenders also examine income and expenses and require a water plan from prospects in areas without shallow underground water sources. In addition, nonlender farm experts on staff or third-party analysts evaluate crops and equipment.

"Otherwise, you run the risk as a lender of financing the planting of a crop ... and halfway through the season, the guy runs out of water," Mr. Stenson said. "Then, you're stuck with only one alternative, and that's to fund the purchase of very expensive water. Or, the other choice is to let the crop go. Then where are you?"

Cindy Nicoletti, a partner in the Santa Rita Ranch, said that lenders' increasing concerns have meant more documentation for her operation to procure the $500,000 to $700,000 a year it borrows in production loans.

"We wouldn't do a lot of it if we didn't have to because of the lending," Ms. Nicoletti said. "We have to ensure the bank that we are doing all of the right things."

Lenders have paid even closer attention in recent years as farmers' water costs have escalated.

"All farmers have had significant capital expenditures in the last five years to either make their existing water go farther or to gain additional water," Mr. Stenson said. "And that ripples through their balance sheet."

Some customers have changed to potentially higher-return but riskier crops in an effort to cover rising water costs, he said. For instance, they'll switch from cotton to something like tomatoes or peppers.

"To us as lenders, we're concerned because traditionally fresh market vegetables tend to be very cyclical," Mr. Stenson said. "You can make a bundle or you can lose your shirt in one year, which is not the case with cotton or other more standard crops."

At Valliwide, whose agribusiness group targets farm loans of $500,000 to $2 million and whose branch network does smaller agricultural loans, "no loan has been collected as a result of water or lack of," said Mr. Stenson, who previously worked for the Farm Credit System in Iowa, New England, and Nebraska before moving to Fresno eight years ago. He joined Valliwide two and a half years ago.

"I know of others, through loan requests that we have had that we denied, that clearly the stress, the high-priced water, and the drought have put them on the brink of destruction."

To compound matters, farmers are just one of three interests that continue to vie for the state's water, along with communities, such as the Los Angeles metropolitan area, and environmentalists.

And the tug-of-war may not bode well for farmers.

"We have water rights here, and we have been assaulted from all directions" by people trying to take them, said Mr. Pruitt of Santa Rita Ranch.

In some cases the government wants to renegotiate farmers' long-term water contracts, Mr. Stenson said. "That sends shivers up the spine of a lender."

The thought of Angelinos, and others who far outnumber farmers, clamoring for their water frightens many lenders in the state's agricultural belt.

"They want it to fill their swimming pools; we want it for our farmers," said James C. Holly, president of Bank of the Sierra, Porterville, Calif., who had an ominous prediction for farmers: "They're going to get it."

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