Dive Brief:
- Food and beverage manufacturers have criticized President Donald Trump’s surprise announcement last week that the U.S. will impose a new 25% tariff on steel imports and a 10% tariff on aluminum imports as early as this week, according to a recent article on CNBC.
- Commerce Secretary Wilbur Ross told the business channel on Friday that Trump’s tariffs are "no big deal," noting that the increased cost would amount to six-tenths of a penny for a can of Campbell’s Soup.
- CPG makers, such as Campbell Soup, Kraft Heinz and General Mills, along with beverage makers like Coca-Cola and AB InBev, could be among industry companies impacted by these tariffs the most.
Dive Insight:
A higher packaging cost is sure to raise the ire of a number of companies in the CPG space already struggling with tight margins and slumping sales. While the proposed tariffs on steel and aluminum imports has not been finalized or enacted, that’s not keeping food and beverage makers from opposing it.
There could be a number of impacts to the food and beverage industry if these tariffs go into place. Companies that manufacture the cans used by these industries could lose business if their customers turn to other materials, such as plastics and glass, the Can Manufacturers Institute said. Any food or beverage maker that sticks with steel and aluminum packaging could see its margins fall if it decides not to pass the higher costs onto their customers through higher prices. Imported food products packaged in these materials could potentially be cheaper than the domestically produced ones, hurting American companies.
For now, it's impossible to know how much of an impact the tariffs will have until more details are released about it. Which countries would they target? How long would they last? Would materials used for food and beverage production possibly be exempt?
Of the major players in the food and beverage space, certain companies stand to lose more than others. Campbell Soup, Kraft Heinz and General Mills all heavily rely on steel and aluminum for safe packaging of their food products.
A representative for Campbell Soup told Food Dive that “any new broad based tariffs on imported tin plate steel — an insufficient amount of which is produced in the U.S. — will result in higher prices on one of the safest and more affordable parts of the food supply.”
The beverage industry voiced a similar concern. Jim McGreevy, president and CEO of the Beer Institute, said in a statement that “this 10% tariff will create a new $347.7 million tax on America’s beverage industry, including brewers and beer importers, and result in the loss of 20,291 American jobs.”
The U.S. used 2.1 million tons of tin plate in 2016, 58% of which was produced domestically, according to the Can Manufacturers Institute. The remainder had to be imported, which is where companies would be paying an extra 10% to 25% for the same material.
Ross told CNBC on Friday the average can of Campbell Soup and Coke would cost less than a penny more to produce if these tariffs were to take affect. Costs would likely be passed along to consumers, but what that really means for prices remains unknown.
It stands to reason that other food products that don’t rely on steel or aluminum packaging could stand to benefit if they suddenly appear to be a cheaper option to consumers. While it's doubtful that a tuna filet would ever be cheaper than a can of StarKist, shoppers also would have to be willing to put time in to prepare the food.
Food makers may consider switching to other materials, like glass or plastic, but they would also have invest money to see how shelf stable the contents could remain in their new packaging. Glass and clear plastic let light in, which can age the food significantly faster than steel and aluminum. CPG manufacturers might find they are better off either paying more for the cans or passing the extra costs on rather than spending more R&D money that could be more expensive in the long run.
As with most cost increases, small manufacturers will likely face the brunt of these import taxes. They’re operating with smaller budgets that can't easily absorb volatility. In contrast, a large food manufacturing giant can offset the costs within their company or through shoppers, shippers or retailers.
Until more is known about when these tariffs will be enacted, and who they will impact, all food and beverage industries can do is speculate as to it’s impact.