15 September 2026
Executive Summary
The worsening Colorado River crisis is creating a growing risk for US agriculture, food production, manufacturing and electricity generation as authorities impose substantial reductions in water use.
The Colorado River supplies water to around 40 million people and supports major agricultural and industrial regions across the western United States.
Federal authorities have ordered Arizona, California and Nevada collectively to reduce annual Colorado River use by approximately 1.25 million acre-feet over the next two years.
The restrictions follow almost three decades of drought, persistent overconsumption and declining river flows.
Lake Mead and Lake Powell — the two major reservoirs within the system — remain at historically low levels.
They are also important sources of hydroelectric generation.
The risk therefore extends beyond water availability.
It affects:
- Agriculture.
- Food processing.
- Electricity.
- Manufacturing.
- Data centres.
- Urban infrastructure.
The strengthening El Niño adds another layer of climatic uncertainty, although individual drought conditions should not be attributed solely to El Niño.
Water availability is becoming a supply-chain constraint rather than simply an environmental issue.
UK Impact
UK businesses may have indirect exposure through US suppliers and commodities.
The western United States produces significant quantities of:
- Fruit.
- Vegetables.
- Nuts.
- Dairy products.
- Livestock products.
Water restrictions can therefore affect:
- Crop availability.
- Food prices.
- Ingredient costs.
- Processing capacity.
- Supplier margins.
Manufacturing and technology businesses should also consider water dependence.
Semiconductor factories and data centres require substantial water supplies for cooling and industrial processes.
Global Impact
The Colorado River illustrates a growing global infrastructure problem.
Many supply chains were built around historical assumptions concerning reliable access to:
- Water.
- Electricity.
- Rivers.
- Snowmelt.
- Reservoir storage.
Those assumptions are changing.
Agriculture is particularly exposed because farmers may respond to reduced water allocations by:
- Planting fewer acres.
- Changing crops.
- Increasing groundwater extraction.
- Increasing prices.
The consequences can then travel through food-processing and retail supply chains internationally.
Reduced reservoir levels can also affect hydroelectric generation, increasing reliance upon alternative electricity sources.
Our View
Businesses should begin treating water availability as a component of supplier due diligence.
Companies should ask:
- Where are water-intensive suppliers located?
- Which watersheds support their operations?
- Are water allocations being reduced?
- Does the supplier depend upon groundwater?
- Are agricultural suppliers irrigated?
- Could production move elsewhere?
- Are alternative suppliers located in the same drought region?
- Could crop substitution affect product specifications?
- Is additional inventory appropriate?
- Could food prices rise materially?
- Do manufacturing sites have water-recycling systems?
- Could lower reservoir levels affect electricity supply?
- Are data-centre providers exposed to regional water constraints?
- Does business-continuity planning include water interruption?
- Are long-term contracts priced for changing resource availability?
Businesses routinely map exposure to energy, transport and labour.
Increasingly they also need to map water.
A factory can have electricity, employees and raw materials and still be unable to operate if its water supply becomes constrained.
Risk Indicator: HIGH – WATER, AGRICULTURE & US SUPPLY CHAINS
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The information contained within these Market Alerts is provided for general market awareness and informational purposes only. It does not constitute financial, legal, investment, regulatory or insurance advice. Whilst every effort has been made to ensure accuracy at the time of publication using multiple reputable and independently verified sources, geopolitical events, legislation, regulation and market conditions may change rapidly. Readers should obtain appropriate professional advice before acting upon any information contained herein.
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