As Big Food companies struggle to overcome changing consumer tastes, higher shipping costs and competition from upstarts, their biggest challenge may be retaliatory tariffs.
Dive Brief:
- Hershey and TreeHouse Foods are among the companies being impacted after Canada imposed levies on nearly $13 billion in American goods after the U.S. placed tariffs on steel and aluminum, according to a July 2 research report from Credit Suisse cited by Food Business News.
- The Wall Street bank said candy, salad dressing and cucumbers are among the products that are subjected to a 10% import tariff. Hershey will be impacted because it sells a lot of its products in Canada, while TreeHouse will have to pay import tariffs on some products while dealing with higher commodity costs. The impact will be less severe on packaged foods companies such as Kraft Heinz and J.M. Smucker.
- “We expect retailers and food manufacturers to try to raise prices to consumers to offset the costs,” Credit Suisse said in the Food Business News report. “But this will prove challenging in today’s highly competitive pricing environment.”
Dive Insight:
Even as Big Food companies struggle to overcome rapidly changing consumer tastes, higher shipping costs and competition from nimble upstarts, perhaps their biggest challenge in the near term will be the impact from retaliatory tariffs being imposed on the U.S. The move by the White House to place tariffs on steel and aluminum from the E.U., Canada and Mexico has prompted a backlash from these prominent trading partners — impacting everything from U.S.-made candy and soup to ketchup and whiskey.
China also has slapped tariffs that affect U.S. pork, dairy, fruit and vegetables, among other products. CNBC estimated that one in 4 hogs in the U.S. is sold overseas, and the Chinese are the world’s top consumers of pork. That could potentially hurt major pork companies such as Hormel Foods and Tyson Foods.
For Big Food companies, there is little they can do in response to the levies being imposed on many of their key products. A Hershey spokesman told Food Dive the company is still assessing the impact of the tariffs.
Michael Mullen, a Kraft Heinz spokesman, told Food Dive the maker of the iconic ketchup “opposes trade policies that impose taxes or tariffs on our products” and is against “any change that impacts our ability to seamlessly move our products across these borders.”
Tyson Foods said it supports a quick solution to the North Atlantic Free Trade Agreement and other trade disputes. “With the current volatility in trade relations, we’ve experienced day-to-day uncertainty in our ability to deliver products and services to customers,” Worth Sparkman said in an email to Food Dive. “With countries imposing retaliatory tariffs on U.S. products, Tyson Foods as well as others in U.S. food and agriculture, will lose our competitive advantage in critical export markets like Mexico, Canada and China.”
Alexandra Sockett, a Campbell Soup spokeswoman, said in an email that with a 10% tariff on soups, broths and tomato products sold in Canada using ingredients from both the U.S. and its northern neighbor, the company expects “the economic impact to our Canadian business to be significant [and]… We are evaluating ways to offset the potential tariff impact and working closely with our customers.”
Hershey, Campbell Soup, Tyson Foods and Kraft Heinz could decide to raise prices on some of their products to make up for lost sales, but the risk, of course, is that it further stymies sales in places where retaliation is not taking place.
And as Credit Suisse noted, the competitive environment makes it unlikely for those increases to succeed. It’s possible they could look to boost sales in countries not affected by the tariffs, renegotiate contracts with their suppliers or close some plants, resulting in job cuts across their supply chain — but none of these are desirable solutions.
If a company decides to move forward on any of these options, it probably wouldn’t be until they are able to determine the full impact and duration of the retaliation. The most likely scenario is that they absorb the lost sales for the time being and focus on what they can control internally.
The original article can be found at Food Dive.
