Arizona ends water lease with Saudi Arabia-owned farm, other companies

PHOENIX - Governor Katie Hobbs has announced the termination of a groundwater lease for Fondomonte Arizona, the Saudi-based company that operates an alfalfa farming operation in La Paz County. 

On Monday, Hobbs, a Democrat, said the state had canceled Fondomonte Arizona's lease in western Arizona's Butler Valley and would not renew three other leases up for renewal there next year.

An investigation by the governor's office found that the foreign-owned farm had violated some of its lease terms. Hobbs called it unacceptable that the farm "continued to pump unchecked amounts of groundwater out of our state while in clear default on their lease."

"The inspections we recently ordered uncovered the default, which is the basis for the cancellation of the lease," said Gov. Hobbs.

Fondomonte uses sprinklers to grow alfalfa in La Paz County and exports it to feed dairy cattle in Saudi Arabia. The company did not pay for the water it used under the old agreement.

The lease previously allowed the company to pump as much of Arizona's groundwater as they wanted, the same water source that would supply water to Phoenix and other Valley cities.

The alfalfa crop is water-intensive. In some cases, neighbors have complained that the corporate farms have used so much water that neighboring wells have run dry. 

"This is not about the foreign-owned business," said Gov. Hobbs. "This is about protecting Arizona's groundwater, and getting the best value of the land for the trust beneficiaries. We're doing diligence across the board with all state land leases to make sure that's what's happening."

Fondomonte's groundwater pumping

Fondomonte Arizona, a subsidiary of Saudi dairy giant Almarai Co., grows alfalfa in Arizona that feeds livestock in the water-stressed Gulf kingdom.

Through a spokesperson, Fondomonte said it would appeal the governor's decision to terminate its 640-acre (259-hectare) lease in Butler Valley. Altogether, Fondomonte farmed about 3,500 acres (1,416 hectares) in the rugged desert area west of Phoenix.

Fondomonte raised eyebrows when in 2014 it purchased nearly 10,000 acres (4,047 hectares) of land for $47.5 million about 20 miles (32 kilometers) away from Butler Valley in Vicksburg, Arizona. Since then, worsening drought in Arizona has brought renewed attention to the company's water use and the broader issues of foreign-owned farms and groundwater pumping.

The violations the governor's office detailed relate to the company's storage of hazardous materials, among other issues. On Monday, Hobbs' office said that Fondomonte was notified of the violations in 2016, but an investigation in August found the company had not fixed the problem seven years later. That gave Arizona's State Land Department grounds to terminate the lease.

The Arizona governor's office said the State Land Department decided not to renew three other leases the company had in Butler Valley due to the "excessive amounts of water being pumped from the land — free of charge."

The department manages land owned by Arizona, which in Fondomonte's case, had been leased to the company. Butler Valley's groundwater is especially important because of state law that in theory allows for it to be pumped elsewhere. That makes its water of interest to cities like Phoenix, also dealing with water supply-related stress and a fast-growing population.

In Arizona, cities such as Phoenix and Tucson have restrictions on how much groundwater they can pump under a 1980 state law aimed at protecting the state’s aquifers. But in rural areas, little is required of water users to pump from underground aquifers besides registering wells with the state and using the water for activities, including farming, that are deemed a "beneficial use."

Fondomonte also farms in Southern California’s Palo Verde Valley, an area that gets its water from the shrinking Colorado River. Those operations have attracted less scrutiny. Not all of Fondomonte's farms in Arizona are affected by the governor's decision. And it’s not the only foreign company farming in the Southwest. The United Arab Emirates-owned Al Dahra ACX Global Inc. grows forage crops in Arizona and California, and is a major North American exporter of hay.

Almarai’s holdings in the Southwest are just one example of the farmland the company and its subsidiaries operate outside Saudi Arabia. It farms tens of thousands of acres in Argentina, which has also faced severe drought conditions in recent years.

Other businesses affected

Fondomonte was not the only company affected: another large company recently inspected – Byner Cattle Company – is a subsidiary of Freeport McMoRan. That company is leasing more than 8,500 acres of state land.

According to Mohave County officials, Byner Cattle Company pumps several hundreds of millions of gallons of water from the state’s groundwater supply every year, and that water potentially goes to its mining operations.

"I'm not going after agriculture," Gov. Hobbs said. "These particular leases are in a transportation basin, which is unique from all the other places: there are agriculture leases on State Trust land."

Public education is currently the biggest beneficiary of state land trust money.

County Supervisor speaks out

Holly Irwin, La Paz County Supervisor, says this was long overdue.

"La Paz County and other rural areas in the state of Arizona finally are being heard on these water issues," said Irwin. "They're real. You know we have people…their wells have gone dry due to this massive pumping."

Attorney General Kris Mayes had announced back in April that the state had rescinded drilling permits for Fondomonte's water wells after discovering inconsistencies in the company's well applications.

"We know by anecdotal evidence that wells are being de-watered by these big farming operations. We know that land is subsiding. We can see that with our eyes," Mayes said in April. "We have existing law that we don’t think is being followed."

Fondomonte releases statement

A spokesperson with Fondomonte LLC sent the following statement to FOX 10:

While Fondomonte is reviewing the notifications received from Gov. Hobbs and the Arizona State Land Department, we believe the state is mistaken that the company is in breach of its lease. Fondomonte will work with the governor’s office to highlight these factual errors. 

Fondomonte is adhering to all the conditions of the lease, and thus we have done everything required of us under these conditions.

As for the other leases the state intends to not renew, this would set a dangerous precedent for all farmers on state land leases, including being extremely costly to the state and Arizona taxpayers. 

Fondomonte will explore all avenues to ensure there is no discrimination or unfair treatment. We have been in discussions with the Governor’s office and we will continue to work with Gov. Hobbs and the state to resolve groundwater matters and misinformation.

It should be noted that we have reached out to Freeport McMoRan for company, but officials with the company have yet to respond.

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The Associated Press contributed to this report.