The proposed 2025 tariffs will have a wide range of effects on the price of food ingredients. Here’s how these tariffs might impact food ingredient pricing:
Increased Import Costs:
- Potential tariffs in 2025 may arise from ongoing geopolitical tensions, shifts in trade policy, or efforts to address trade imbalances and support domestic production.
- The incoming administration says that they will impose a 10% or 20% tariff on all imports across the board, along with an additional tariff of between 60% and 100% for products imported from China. This would include food ingredients imported from China.
Supply Chain Disruptions:
- Tariffs lead to supply chain disruptions, especially if key ingredients or processing materials are imported. If manufacturers face delays or shortages due to tariffs, they may need to source materials from alternative suppliers, potentially at much higher prices. This could further contribute to price increases for food ingredients. Look back at 2017 and particularly 2019 where COVID and tariffs drove the price of food ingredients to $11.00 per KG.
Market Dynamics and Competition:
- The introduction of tariffs could alter the competitive landscape. If foreign producers face higher tariffs, they may choose to withdraw from the U.S. market, reducing competition. With fewer suppliers, domestic manufacturers may have more pricing power, which could lead to increased prices for consumers. This would certainly be the case as the EU moves allulose and monk fruit off the novel ingredient list and overseas demand sours.
Consumer Demand and Price Elasticity:
If the price of food ingredients like allulose, erythritol, stevia, monk fruit, and fibers rise due to tariffs, consumer demand may be affected, especially if there are alternative sweeteners and fibers available at lower prices, think erythritol and polydextrose. If demand decreases significantly, producers may be compelled to adjust prices or seek ways to reduce costs to remain competitive.
The Icon Foods Advantage
To effectively get ahead of the proposed 2025 tariffs, manufacturers, particularly in industries impacted by these tariffs like sweeteners and fibers, can adopt proactive strategies. Here are a few potential solutions:
Diversify Supply Chains:
- Multi-Source Suppliers: Icon Foods has several vetted and approved sources for our entire portfolio of sweeteners, fibers, and sweetness modulators. Icon Foods has established relationships with a diverse range of suppliers, both domestic and international. This reduces reliance on any single source, and mitigates risks associated with tariffs and supply chain breakdowns.
Strategic Inventory Management:
Stockpile Key Ingredients: If tariffs are anticipated, businesses might consider increasing inventory levels of essential ingredients, like stevia, monk fruit, allulose, erythritol, and fibers, before the implementation date. This can help buffer against immediate price increases. Icon Foods can help your company front load your purchases to avoid this impact of the pending tariffs.
Optimize Inventory Practices: Implement just-in-time inventory systems to manage stock levels efficiently while being prepared for potential tariff impacts.
Cost Analysis and Pricing Strategy:
- Conduct Regular Cost Assessments: Continuously analyze the cost structures of products and ingredients to identify areas where savings can be achieved.
- Adjust Pricing Strategies: Prepare to adjust pricing strategies in advance, considering potential cost increases due to tariffs. Transparent communication with retail about necessary price changes can help maintain trust.
Engage in Policy Advocacy:
- Stay Informed on Trade Policies: Keep abreast of trade policy developments and proposed tariffs, engaging with industry associations or by subscribing to the Icon Food Market Intelligence Report. Your partners at Icon Foods have their fingers on the pulse of the changing industry and will keep you apprised.
Scenario Planning and Risk Assessment:
- Conduct Scenario Analysis: Assess various scenarios regarding tariff implementation and their potential impacts on operations, costs, and pricing. Your Icon Foods representative can help you do this with fresh data delivered weekly.
- Develop Contingency Plans: Create contingency plans to address different outcomes related to tariffs, ensuring the business can quickly adapt to changing circumstances. Icon Foods is currently running targeted scenarios to help customers with viable contingency plans.
By proactively implementing these strategies, you can better position yourself to navigate the potential impacts of the proposed 2025 tariffs. Optimizing your food ingredients inventory, adjusting pricing strategies, exploring alternatives, and conducting thorough risk assessments with your Icon Foods representative are all effective ways to mitigate risks and maintain competitiveness in a shifting trade landscape.
Icon Foods is here to help you get ahead of potential food ingredient supply chain issues and dramatic cost increases.
Schedule a call with Icon Foods to strategize your next move.
