Dive Brief:
- Over 100 retail companies and organizations, including several large grocery chains, the Food Marketing Institute and the National Grocers Association, have joined forces to create a group called Americans for Affordable Products and oppose the proposed border adjustment tax, Progressive Grocer reports.
- The border adjustment tax is a major component of the tax plan put together by the Republican majority of the U.S. House of Representatives. The proposed 20% tax would replace corporate taxes and be based on where products are used, meaning exports wouldn't be taxed while imports would.
- As quoted by Progressive Grocer, the NGA states this tax would increase the cost of food for consumers: "As much as 30 percent to 40 percent of fresh produce items sold in stores are imported into the United States at some point throughout the year. Instituting a ‘food tax’ on consumers for imported products is simply not a workable solution."
Dive Insight:
White House Press Secretary Sean Spicer wasn't just speaking off the cuff when he mentioned a potential 20% tax on goods imported from Mexico earlier this week. The House Republican's plan, championed by Speaker Paul Ryan, has been making the rounds as a way to improve upon current corporate tax rates and methods. While President Donald Trump reportedly found the plan confusing at first, several news sources are reporting that he is starting to look at it more favorably.
Critics call this kind of plan confusing because it completely changes the corporate income tax structure. The plan would strongly favor domestic business and consumption, which aligns with Trump's platform. There are types of businesses that could benefit from this restructuring, but it would impact food retailers disproportionately. According to the U.S. Department of Agriculture, the nation imported 19.4% of the food consumed in 2013.
USDA states that import-heavy categories in grocery include fish and shellfish, fruits and nuts, sweeteners, and wine. Almost all bananas, mangos, coffee, cocoa, tea, spices, olive oil, and tropical oils are imported, as well as grapes, melons and tomatoes. The proposed border tax adjustment would likely cause prices for these goods to rise.
Not only are many staples included in these products — they're also categories that have been doing particularly well in grocery lately. According to statistics from IRI, grocery stores saw perimiter sales grow 3.8% over the last four years — including $62.5 billion in sales from produce and $11.3 billion in seafood sales. The only area of the perimeter that didn't see significant growth was meat. While meat consumption is on the rise — and the meat in grocery stories is primarily raised in the U.S. — price deflation pushed down revenues. In fact, deflation and oversupply has decreased the prices of many of the products that are produced in the U.S., including eggs and dairy.
While Republicans seem to be in favor of changing laws to favor businesses, this plan appears to be hitting some roadblocks in the Senate. Tax rates that impact imports would likely require reconsideration of existing trade agreements. Currently, Mexico is the nation's second-largest agricultural importer, supplying $21 billion of products to the U.S. in 2015, according to the U.S. Trade Representative. Tax changes with Mexico would require a renegotiation of the North America Free Trade Agreement, which Trump made a pillar of his presidential campaign. Many food manufacturers and trade groups have requested that Trump strengthen provisions that deal with food imports and exports.