In 2024, fluctuating global water supply presented considerable disruption to supply chain continuity, especially in water-intensive industries like agri-food, textiles, mining, pharmaceuticals, energy, and logistics. Water-related disruptions were particularly acute during the first half of the year. Growing pressure on water resources from prolonged issues like drought have had negative regional implications for the productivity and output of manufacturing, energy generation, and agriculture. At the same time, more frequent and severe flooding events have made critical commodities vulnerable to losses, and both drought and floods have disrupted freight movements on key transit routes integral to regional and global supply chains. In 2023, nearly half of the globe had dry river flow conditions, though 17% reported above and much-above normal water level conditions.
Though water supply is now a global challenge, Latin America and Asia-Pacific have borne the brunt of the disruptions due to the convergence of extreme weather risk and industrial output. Agriculture is the largest consumer of water, and both reduced and surplus water availability impact crop yields and inflict damage that can perpetuate crop losses for future harvests. Sufficient water supply is essential for textiles, pharmaceuticals, manufacturing, food and beverage processing, hydroelectricity generation, and minerals extraction. Water scarcity can lead to operational delays and increased costs for these sectors, and in the case of hydroelectricity, can destabilize national power supply. Concurrently, severe flooding can disrupt each of these industries with force to match through power outages, infrastructure damage, and industrial sites made inaccessible.
Though each regional analysis enclosed highlights unique risk trends, the severity of water vulnerabilities is shared. Understanding risk exposures will help supply chain managers adapt operations to mitigate future impact and increase resilience to water supply shocks.
Regional Risk Assessment: Latin America (LATAM)
Latin America often experiences both ends of the water supply spectrum, with areas like the Andes and northeastern Brazil experiencing drought-induced shortages, while areas like the Amazon Basin and Rio Grande do Sul in southern Brazil, have seen both flooding and extreme drought in the past several years.
So far this decade, localized areas within the region experienced reduced crop yields due to severe drought and less-than-average rainfall volumes. This included substantial losses of maize and bean crops in northeastern Brazil and quinoa crops in southern Peru, and reduced output of soybean, corn, and livestock in the Pampas region of Argentina, and across Paraguay. In each case, both local markets and exports were impacted by reduced supply and increased prices due to competition for depleted commodities. Low water supply also impacted mining operations across the region. In Chile and Peru, copper extraction faced considerable operational challenges due to water scarcity and usage restrictions, while lithium brine extraction sites in Salinas Grandes, Argentina were made inaccessible due to flooding from heavy rainfall. Floods interrupt the evaporation process critical to lithium recovery, delaying production and reducing annual output targets.
Reduced river flows from water scarcity issues impact navigability, increasing shipping costs and delays. Crucial regional waterways for river freight transport include the Amazon River, utilized for the international transport of most goods, the Paraná River, critical for the trade of grains and other agricultural commodities between Brazil, Paraguay, and Argentina, and the Tocantins River, used for the movement of iron ore and other minerals within Brazil and to other regional and international markets. The Amazon River reported surplus water levels from flooding in 2021-2022, followed by the lowest levels on record 2023-2024 due to drought. Meanwhile, both the Paraná and Tocantins Rivers have also reported depleted water levels over the last few years due to the combined effects of climatic conditions and hydroelectric dams built upstream that slow river flows.
Most recently, the drought in Mexico that has been ongoing since 2022 has led to dozens of chemical companies in Tamaulipas in the northeastern part of the country to shut down production for weeks, including multinationals Ineos Styrolution, Cabot and Sabic.
The inverse is also problematic, when slowed river flows due to water scarcity affect downstream hydroelectric plant operations, which are a primary energy source in several Latin American countries. Energy shortages prompt power conservation efforts and some outright production stoppages, causing operational burdens in sectors like textiles, pharmaceuticals and chemicals, and food. Textile factories in Peru and Brazil experienced disruption to energy-intensive dyeing and finishing processes. Food processing and beverage bottling facilities in Argentina and Chile and sugar refineries in Brazil reported the same. Lastly, pharmaceuticals manufacturing hubs in São Paulo and Minas Gerais, Brazil, Córdoba and Buenos Aires, Argentina, Antofagasta, Chile, and Cundinamarca, Colombia reported reduced production due to water or energy scarcity.
Regional Risk Assessment: Asia-Pacific (APAC)
Much like Latin America, Asia-Pacific has also experienced both water scarcity and water surplus stress in recent years. In India’s Rajasthan and Gujarat regions and in China’s northern provinces, both water deficits and surpluses have impacted agricultural production. In Southeast Asia, countries like Thailand and Vietnam faced water shortages in 2023 that disrupted agri-food supply chains from raw materials to finished end-products.
Rice production has been challenged at times in countries like India, Vietnam, and Thailand due to erratic rainfall patterns and drought conditions, leading to reduced yields. In Indonesia and the Philippines, both drought and flooding have affected output and crop quality at cocoa farms, while water shortages in Vietnam and Indonesia have harmed coffee harvests. Sugarcane crops in Australia and Thailand have also seen lower yields due to fluctuations in water supply amid intermittent droughts in both countries. In each case, reduced crop yields have decreased global supply and increased market prices. Food processing facilities have also been disrupted due to limited water availability for manufacturing and proper sanitation. This has affected dairy in Maharashtra and Gujarat, India, coconut products in the Philippines, and beverages and canned foods in Vietnam.
Countries like Bangladesh, Cambodia, and Vietnam, all critical for textile manufacturing, are heavily reliant on stable water supply to support dyeing and finishing processes. Factories in Dhaka, Phnom Penh, Ho Chi Minh City, and Hanoi have encountered disruptions due to limited water availability that have impacted production schedules and general efficiency. Further, regions like Tamil Nadu and Gujarat, India, and Zhejiang and Jiangsu, China are significant centers for textile manufacturing and have experienced reduced operations in garment factories amid water scarcity trends this year. Pharmaceuticals manufacturing has faced similar challenges due to its heavy reliance on consistent water supply. Production hubs in Maharashtra and Gujarat, India, Jiangsu and Zhejiang, China, and New South Wales and Queensland, Australia have encountered production delays and increased operational costs.
Other industrial processes like mining and logistics have been affected, while the semiconductor industry in Taiwan is also at risk. Water supply is necessary for processing extracted minerals, and some mines in Indonesia have had to suspend coal washing amid reduced water availability. In other cases, like western Australia’s gold mines and Odisha, India’s iron ore mines, fluctuations between drought and heavy rains have made mining operations unreliable and therefore, unsafe. In extreme flooding events, mines have become inaccessible for prolonged durations due to damaged roadways, mudslides, and landslides.
In Taiwan, the country’s critical semiconductor industry relies on water for cooling systems and cleaning residue from silicon wafers. After 2030, 40 percent of chip plants currently operating could be located in areas of high to extremely high water stress risk. In a preview of what to expect, chip makers were forced to reduce water consumption by more than 15 percent and order trucks carrying water to the plants to maintain operations in the past few years.
Further, the Asia-Pacific region relies on several river routes for cargo transportation, and oscillating water levels have exacerbated issues with regional supply and trade of raw materials and finished goods alike.
Everstream clients are receiving more detailed insights and recommendations about this risk.
Don’t miss key supply chain risk updates! Subscribe now to get supply chain news, weather updates, forecasts, and other insights.