No business likes uncertainty and, for months, President Trump’s policy on tariffs have made it difficult for boardrooms across the food and drinks industry to make important strategic and commercial decisions.
That uncertainty has continued this week, with the US finally introducing tariffs on goods from Canada and Mexico (after a one-month pause), with Ottawa (and other Canadian provinces) hitting back and Mexico City insisting it will do so, too.
At the same time, Washington has slapped more tariffs on China – which announced its own retaliation – while Trump suggested he has measures up his sleeve for the EU.
Even as this article was being written, the uncertainty over what might happen next continued to swirl, with US Commerce Secretary Howard Lutnick telling Bloomberg Trump is mulling alleviating some of the impact of the 25% US tariffs on Canada and Mexico.
“What he is thinking about is which sections of the market that can maybe — maybe he’ll consider giving them relief,” Lutnick was quoted as saying.
It’s hard to know just what is being contemplated in the Oval Office. Maybe Trump has seen the impact on the US dollar of the tariffs on the country’s two neighbours or noted how the post-election ground gained by the S&P 500 index has now been lost.
However, food and drinks industry executives cannot afford to sit and wait and see what might come next. It’s clear contingency plans have either been enacted or drawn up and calculations made as to the potential financial impact of not just the US tariffs that have been announced but those that may follow (and, for that matter, any subsequent counter-measures).
Chocolate major Lindt & Sprüngli has lined up changes to its stock position and production.
“Whilst the tariffs in the US have a minor impact, the tariffs in Canada will have an impact,” CEO Dr Adalbert Lechner said yesterday (4 March).
“We have increased our inventory because in fact, half of the volume that we sell in Canada is sourced from the US, and half of it is sourced from Europe. We have increased inventories from the products that we source from the US, and at the same time, we prepare to transfer the volumes that are sourced from the US to Europe.”
Spirits group Campari estimates the 25% tariffs on Canada and Mexico, plus Trump’s mooted 25% tariff on the EU, could hit its EBIT for this year by €90-100m ($96-107m).
Last month, fellow major distiller Pernod Ricard cut its forecast for annual sales, citing an “ongoing challenging macroeconomic environment” and “intense geopolitical uncertainties”.
In early February, when Trump first announced the planned tariffs on Canada and Mexico, Johnnie Walker whisky maker Diageo estimated the measures could cost the business $200m.
And, earlier this week, Italy’s wine-trade association said the impact of US tariffs could wipe almost €1bn ($1.07bn) from the value of the country’s wine exports.
What is certain is uncertainty will continue to reign. Even taking Lutnick’s comments to Bloomberg at face value, Trump, in a speech to Congress yesterday, was firm in his belief that tariffs will bolster the US economy. “Tariffs are about making America rich again and making America great again,” he said.
Understandably, few food and drinks companies are prepared to go public with exactly how they’re seeking to mitigate the impact of the tariffs. Even publicly listed firms that have given a rough idea to investors about the possible financial hit from the measures are reluctant to go into detail about the changes they’re trying to make to sourcing, distribution or pricing.
In many cases, it’s hard to make significant changes in such short order. But there’s little doubt moves are being made.
Mike Short, president of global forwarding at logistics group CH Robinson, says it’s “too soon to know the full impact of new and adjusted tariffs” but adds: “As with many disruptions, the new and adjusted tariffs are impacting our customers in various ways, requiring our teams to implement different mitigation strategies and execution plans based on the customer’s goals and the impact of the tariffs. For example, we helped a food and beverage customer expedite North America cross-border freight ahead of Tuesday. They are now decreasing volumes for the next couple of weeks and will reassess the tariffs to determine next steps.”
In beverage alcohol, one clear consequence of the trade row between the US and Canada has been the moves by Canadian provinces to start pulling US-made products from their shelves.
Ontario premier Doug Ford said: “It’s a tough day for Ontario and for Canada, just as much as it’s a tough day for the United States. This is an enormous hit to American producers”.
In 2024, Canada ranked was the second-largest market for US spirits, with exports worth $221m. “This misguided retaliation will needlessly reduce revenues for the provinces and hurt Canadian consumers, tourists and hospitality businesses. For decades, there have been zero for zero tariffs on spirits trade between the U.S. and Canada. We are the model of fair and reciprocal trade. We urge the US and Canada to work together to reach an agreement that continues to foster a thriving spirits industry between our two countries,” Chris Swonger, president and CEO of US spirits trade body DISCUS, said.
Dr Sylvain Charlebois, a professor and senior director at Dalhousie University in Canada, says there has been “a shift away from American products” in the country since Trump’s initial tariffs announcement last month. He says the circa 7% decline in sales “is opening the door for imports from other countries or even more local alternatives”.
Charlebois adds: “This could create opportunities but only if supply chains can adjust quickly enough to meet demand. For most, this is about managing uncertainty rather than capitalising on opportunity. The challenge is passing on costs without losing customers, and that’s a fine balance.”
The upheaval will be causing furrowed brows across the industry, though larger companies may be better placed to react. The legions of SMEs that make up the food and drinks industry should not be forgotten.
Tyler Mayoras, an MD at private-equity firm Manna Tree, says emerging CPG companies need to beware they “don’t lose margins to tariffs”.
He says: “Margins are the lifeblood of emerging CPG companies. If your gross margin is less than 40%, you need to try to get it up to that minimum hurdle or else you will need to raise a ridiculous amount of money to grow. The last thing you want to do is let tariffs whittle away your current gross margins.”
Tariffs could provide an opportunity for brands to try to push through price increases, Mayoras suggests. “I would argue that there is no better excuse to raise prices than tariffs. You had no control over the increase in raw material costs, you could not negotiate that new price increase and there no way to quickly offset it with efficiencies. It was completely out of your control,” he says. “If competitors are rational, they are all going to raise their prices to offset the cost of these higher tariff loaded raw materials. As such your increased price is still going to look the same, relative to competitors’ prices.”
Of course, increasing prices will be tough but there is a hope customers will recognise the situation facing suppliers, even if they – and their vendors – will be closely watching consumer reaction.
“Increasing prices may be difficult but I do believe actors in the value chain will understand. I have heard that in the US some companies earlier this week immediately raised prices,” Cyrille Filott, global strategist for consumer foods, packaging and logistics at Rabobank, says.
Food and drinks companies in Europe with significant markets in the US will be watching closely. If Trump follows through with his threat of a 25% tariff, there will be some pain, Filott suggests.
“For Europe, initially our thinking was that tariffs would be 10%. That seemed manageable. Now at 25% it is a different story, and the ‘deal with it’ option that we had is much harder to achieve. So, in the short term, exports to the US will drop if tariffs are imposed.”
One purported aim of Trump is for the tariffs to bolster US manufacturing. Filott believes European manufacturers will be weighing up their options. “We still believe for at least some manufacturers it may accelerate investment in the US. I am convinced this is being discussed in board rooms right now,” he says.
And, then, of course, there is the prospect of retaliatory measures by the EU against the US, which will no doubt be adding to the headaches in boardrooms across the Atlantic.
As Mohamed El-Erian, the president at Queen’s College, Cambridge, says, this week’s escalation “has significant implications for the global economy, with potential short-term and long-term consequences”.
“In the short term, the US experiences relative gains. All countries involved, including the US, face absolute losses in the short-term; and, over the longer term, the US risks jeopardising its central role in the global economy, leading to greater fragmentation of the global economic and financial system and a decline in overall economic growth,” he says.
“Given these potential consequences, it is in all countries’ interests to find a way to de-escalate trade tensions and establish a more stable and fairer trade environment.”
