An undercover investigation by the state has disclosed widespread illegal use of the banned pesticide DBCP by farmers in the San Joaquin Valley, a prime agricultural area. They are obtaining contraband supplies of the chemical from Mexico.

DBCP, used for 20 years to control soil pests called nematodes, was prohibited in California in 1977 after studies linked the chemical to cancer in laboratory animals and in workers where the substance was manufactured.

State officials have found higher than allowed levels of DBCPin numerous California wells.

In a brief statement issued Friday, the State Department of Food and Agriculture disclosed it was aksing Attorney General George Deukmejian to look into new evidence that farmers are continuing to use black-market supplies of the chemical.

Sources familiar with the department's investigation say the evidence involves a multimillion-dollar smuggling operation in which the toxic pesticide is being trucked in mass quantities from Mexico.

DBCP, which was selling for about $8 a gallon when banned three years ago, is now selling for $30 to $60 a gallon on the black market, various authorities said. Truckers involved in smuggling the substance get about $4 a gallon for bringing it in from Mexico where use of DBCP is still legal.

"Undercover investigators have found the problem is really widespread, particularly in the Fresno area," one source said.

Enforcement of the DBCP ban has been difficult, because application of the chemical, which is mixed with irrigation water, is necessary only once every two or three years.

The incentive for farmers to use the pesticide is enormous. DBCP is believed by farmers to be the only chemical that can be injected into the soil to kill the tiny nematode worms that attack the roots of perrenial plants, sapping production. Other substances lethal to these worms are so toxic they kill the plants as well as the worms.

Deput Food and Agriculture Director Daniel M. Dooley said no tests have been conducted to date to ascertain whether toxic residues are contaminating crops.