By Nick Bowman, Senior Editor
Around the world, factories and farms are confronting a new reality: More frequent shortages of water are now capable of throwing supply chains into chaos as quickly as any tariff or transport shock.
The problem starts with availability — less than 3% of all water on Earth is fresh water, and of that, just 0.5% is fit for human consumption. Factor in the growing risks created by lengthier drought seasons, increased demand from resource-intensive technologies like artificial intelligence and semiconductors, and the impacts of climate change on crucial maritime gateways, and it's a recipe for global disruption.
"At a higher economic level, you've got to equate water risk with national security risk," says Saima Qadir, an advisory board member for water quality management company BlueGreen Water Technologies.
Water risk touches virtually every part of the world's most crucial supply chains. According to a 2024 study from the World Resources Institute, at least a quarter of the world's crops are grown in areas where the water supply is under threat. Worse, fully a third of rice, wheat and corn — which provide more than half of the world's food calories — are produced in areas where water availability is either highly stressed or highly variable. Recent warning signs are not hard to find. Dry conditions along the Ivory Coast caused global cocoa production to fall by 14% during the 2023-24 growing period, while severe drought and extreme heat caused Spain’s olive oil production to plunge by 50% during the 2022-23 harvest.
Concerns have mounted over the added environmental stress created by AI data centers as well. According to the Environmental and Energy Study Institute, a single mid-sized data center can consume up to 110 million gallons of water a year for cooling purposes, equivalent to the water use of roughly 1,000 households, while larger facilities can use as much as 1.8 billion gallons annually, or the equivalent of a town of 10,000-50,000 people. Together, U.S. data centers consume a combined 449 million gallons of water daily, as well as 163.7 billion gallons each year.
In Spain, where Amazon is planning to build three new data centers in the northern region of the country, opponents tell the Guardian and investigative news outlet SourceMaterial that 75% of Spain is already at risk of becoming too dry to farm, and that between climate change and planned data center expansions, the country's farmland is on the verge of ecological collapse.
Elsewhere, some facilities have even begun to pull from groundwater, which is supposed to be a last-resort option after surface water, stormwater and other municipal sources. And in Virginia, water levels in the Potomac Aquifer — a key source of drinkable groundwater for the region — have fallen by as much as 30 meters in some spots, as nearby data centers have drawn down the aquifer's reserves.
Water scarcity goes far beyond data centers, but also the navigability of commercial waterways. In 2023, the Panama Canal experienced its most significant dry spell in more than a century, slowing down shipping through the critical waterway for months, as water levels at the canal's Gatún Lake hit record lows. This year, the area around Budapest, Hungary, saw its driest June since 1901, leading to unseasonably low water levels along the Danube River, and limiting cargo ships to 30-40% of their normal capacity for weeks. Similar weather in Germany dried out the Rhine River too, forcing the volume of cargo vessels transiting a key chokepoint through the town of Kaub down to 50% of normal.
And those pinch points are only expected to worsen. The United Nations projects that global freshwater demand will outstrip supply by as much as 40% by 2030, driven not only by climate change, but by rapid industrial growth and urbanization. For supply chain leaders, that means water stress is no longer a localized environmental issue, but a systemic threat that can idle factories, reroute shipping networks, and destabilize operations across entire industries.
"It's about the interconnection," says Qadir. Water scarcity can lead to reduced yields for staple crops that rely on consistent irrigation. It can cause production delays for textile producers that need water for dyeing and finishing fabrics. And it can massively increase operational costs for mining outfits that use water to wash coal. If a single link in the supply chain falters for any one of those industries, the consequences are felt all throughout.
Addressing the issue head-on won't be easy, but there are options, Qadir says. In Mexico, baking company Grupo Bimbo has helped restore hundreds of hectares of land by planting native vegetation to help replenish groundwater levels by increasing the capture of rainfall, and has committed to restoring local watersheds that are critical to the grain farmers the company depends on. Other large corporations like Coca-Cola have started using volumetric water benefit accounting, which tracks and measures how much water their sustainability and conservation projects are actually contributing to restoring replenishing local aquifers, and improving overall water availability in the watersheds where they operate.
Perhaps even more importantly, "we've got to stop managing water by sovereign borders," Qadir says. Rivers and aquifers don't pay heed to lines on a map, as is demonstrated by the looming crisis over management of the Colorado and Rio Grande rivers that feed Mexico and the Southwest U.S. Ultimately, this crisis requires a trans-boundary approach, where countries collaborate on sharing and maintaining rivers, aquifers and watersheds, to the benefit of all.
Published on Supply Chain Brain
