When Donald Trump was elected president, a lot of people were very surprised. It’s safe to say that his presidency has been a series of surprises, for just about everybody. Including the food and beverage industry.
We pondered what a Trump presidency might mean to the food and beverage industry back in November 2016
Halfway through Trump’s first term, his administration’s impact on food and agriculture mostly mirrors its larger impact on business as a whole. He campaigned as a businessman, promising to remove regulatory shackles and to improve the business climate.
But with trade, with regulations and especially with the government shutdown that greeted 2019, the Trump administration’s effect on the food & beverage industry has been decidedly mixed.
Early in his administration, Trump regularly touted the rising price of stocks as an indicator that his economic policies were successful. But the stock market proved volatile, and food and beverage companies were no exception. Collectively, stock prices for the top 10 American food processors fell 14 percent from January 2017, the start of Trump’s term, to last December.
Observers say Trump’s administration has come up against an eternal truth of public policy: It’s seldom a matter of simple, direct cause and effect.
“All of this stuff is connected,” says Derrell Peel, a professor and livestock marketing specialist at Oklahoma State University. “You can’t just mess with one part of it and assume that it won’t have any impact anywhere else.”
Trade is arguably the area where the impact on food has been both the most immediate and the longest-lasting. Trump, who during the campaign railed against “one-sided” trade deals that were “raping our country,” made two decisions early in his administration with wide-ranging consequences: withdrawal from the North American Free Trade Agreement (NAFTA) and tariffs on imported aluminum and steel.
The NAFTA decision drew considerable attention from the food industry, since a lot of food crosses the Canadian and Mexican borders, in both directions. But the issue has been at least temporarily resolved with the replacement for NAFTA: the U.S., Mexico and Canada Agreement (USMCA), reached last September.
Considering the vehemence with which Trump criticized NAFTA while campaigning, the USMCA is remarkably similar. It preserves American access to Canadian and Mexican agricultural markets at virtually the same levels; the biggest change is increased penetration of the Canadian dairy market.
USMCA slightly increases the quota of American dairy products that can be sold in Canada without triggering Canadian tariffs, and makes Canada raise its prices for certain dairy-derived ingredients like milk protein concentrates and milk powder, making American equivalents more competitive.
The Canadian dairy market was a particular bugaboo of Trump’s, which he targeted in tweets like “Canada charges the U.S. a 270% tariff on Dairy Products! They didn’t tell you that, did they? Not fair to our farmers!” But USCMA is expected to raise the American share to the Canadian dairy market only from 3.25 percent to about 3.6 percent – an increase of about $70 million.
“At the end of the day, this is not a trivial thing,” Andrew Novakovic, a professor of agricultural economics at Cornell University, told CNN. "But the United States is a big market, and this is a relatively small amount of dairy products relative to the total."
USMCA still must be ratified by the legislatures of all three nations. Whether this happens may depend on the blowback from a more drastic trade decision in March 2018: tariff of 10 percent on imported aluminum and 25 percent on imported steel.
These tariffs, of course, thrilled domestic metal company CEOs, several of whom gathered with Trump for a photo op when he signed the measure. But for food and beverage companies, it’s a triple whammy. It raises the prices of aluminum and steel they need in the short term, for cans and other packaging; and in the long term, for equipment; and it is sparking retaliatory measures in food trading.
Before Trump initiated the tariffs, he received a letter from several major beverage companies and industry groups, including the Beer Institute, Coca-Cola, PepsiCo and Molson Coors. The letter estimated that a 10 percent tariff on imported aluminum, which soon came to pass, would cost the beverage industry $256.3 million.
Canned foods as well as beverages are being affected by higher metal prices. Some observers point out that this impact is falling disproportionately on lower-income consumers, who are more likely to depend on canned goods.
“Global tariffs on steel and aluminum will have a unique impact on the [consumer goods] industry, acting as a tax on consumers and creating competitive dislocations in the marketplace,” says Michael Gruber, vice president for government affairs at the Grocery Manufacturers Assn. “Any increase in costs of foods, beverages and consumer goods resulting from these tariffs will be felt by all Americans, but most acutely by consumers who rely on shelf-stable, canned food products.”