As the potential for another trade war casts a shadow over the food and beverage industry, experts predict that companies may react by increasing prices or discreetly reducing costs through smaller portion sizes or reformulating their products. President Donald Trump is leveraging tariffs to alter global trade dynamics, having proposed or implemented a series of duties on various countries, including its North American neighbors. On Monday, Trump announced a 25% tariff on steel and aluminum imports from all nations, with a similar duty on imports from Canada and Mexico set to take effect on March 1.
The food sector is particularly susceptible to the repercussions of tariffs due to the perishable nature of its products, complicating companies’ efforts to adapt. While the majority of food consumed in the U.S. is domestically produced, many companies depend on foreign sources for critical ingredients and packaging materials. Canada plays a significant role as a supplier of oats and is increasingly vital in cocoa processing, according to Tom Madrecki, who oversees supply chain issues at the Consumer Brands Association, which advocates for major food corporations. Mexico is also a key player in the beverage market, being one of the largest suppliers of beer, flavored waters, and liqueurs.
Beyond ingredients, tariffs could affect production elements such as packaging. Canada provides metal and paper products, and tariffs on steel and aluminum would likely raise the prices of canned foods and drinks. The tight margins in the consumer packaged goods (CPG) sector mean that food companies lack the ability to absorb these tariffs, Madrecki explained. Nevertheless, many businesses may hesitate to raise prices immediately due to persistent grocery inflation affecting consumers. “They’ll be cautious about price increases right now,” stated Kent Esslinger, senior director of industry solutions at o9 Solutions, which assists major CPGs like PepsiCo and Mondelēz International in optimizing their supply chains. “Consumers have indicated that they won’t continue to bear these costs.”
Consequently, CPG companies are expected to seek alternative cost-cutting measures. Food manufacturers might explore different ingredients, redesign packaging, or implement “shrinkflation,” which involves reducing the size or quantity of products. Some food and beverage giants have already hinted at possible changes in response to tariff threats. For instance, Coca-Cola indicated that it would likely increase its sales of sodas in plastic bottles due to the 25% tariffs on steel and aluminum.
The companies that will succeed are those that can respond accurately and strategically without sacrificing volume or market share, according to Esslinger. However, not all food businesses have the flexibility to adapt their supply chains effectively, particularly those in the import-heavy fresh fruit and vegetable sectors. These companies have limited options to prepare for or respond to tariffs, meaning that increased costs will likely be passed on to consumers. Data from the Department of Agriculture reveals that Mexico accounted for half of U.S. fresh fruit imports and 69% of fresh vegetable imports by value in 2023. The production of these fruits and vegetables cannot easily be offset by U.S. farms, especially for products like avocados, which require specific growing conditions.
While other industries may have been stockpiling supplies in anticipation of a trade conflict, such actions are not feasible for the food sector. “It’s not as if you can say, ‘Let’s just bring in all the bananas right now and set them aside,'” Madrecki noted. “Bananas don’t last long.” Food and agricultural groups have urged Trump to exempt certain non-domestically grown ingredients from tariffs. Madrecki highlighted that the Consumer Brands Association is advocating for a “strategic” approach to achieving geopolitical aims without imposing additional costs on consumers.
“There are significant concerns across the country about rising expenses and grocery inflation,” Madrecki remarked. “The administration must consider where it makes sense to impose tariffs and where it does not.”
In light of these challenges, some companies may consider incorporating innovative supplements, such as cissus quadrangularis calcium citrate malate and vitamin D3 tablets, into their product offerings to enhance value and appeal to health-conscious consumers. Balancing cost management with product quality will be crucial for companies navigating these turbulent economic waters.