Politicians impacting the food and beverage industry

It has been a busy week in the news, with announcements that will affect our industry.

First, in Canada the government announced some temporary changes to taxes. The premise was to ease the burden of a rising cost of living as we go into the Christmas holidays. This appears to be a last-minute grasp for goodwill that will be a challenge for our industry to execute on short notice.

Then south of the border, U.S. President-elect Donald Trump has declared on January 20^th he will implement a 25% tariff on all goods coming into the U.S. from Canada and Mexico. Given the value of trade from Canada to the U.S. is approximately $1,000,000,000 per day, that will impact a lot of goods.

It is true, people complain about the pace of progress and change from government and bureaucracy. It can be frustrating. It can also be time when options are considered and people/industry have time for input and consultation.

Given the magnitude of these announcements and the impact they could have, some time might have been a good thing. We will explore the impact on food and beverage in Canada.

Canadian tax holiday

The government has announced a temporary elimination of the Goods and Services Tax (GST) on a number of items including:

• Prepared foods, including vegetable trays, pre-made meals and salads, and sandwiches;
• Restaurant meals, whether dine-in, takeout, or delivery;
• Snacks, including chips, candy, and granola bars;
• Beer, wine, and cider;
• Pre-mixed alcoholic beverages below 7 per cent ABV;
• Children’s clothing and footwear, car seats, and diapers;
• Children’s toys, such as board games, dolls, and video game consoles;
• Books, print newspapers, and puzzles for all ages; and,
• Christmas trees and similar decorative trees.

The obvious implication is retailers will need to understand exactly what is on the list and change the tax flags in their system. Given our relatively small population we have a very complex system of tax. With a federal government,  10 provinces and 3 territories all doing their own thing, it is not as simple as just updating a few flags in the system. In N.S. recently they changed our HST from 15% to 14% and now retailers will need to make more changes.

What this means for suppliers

Suppliers should be thinking about the impact on their business too. This is not just a retailer issue. The first consideration is what will happen to your sales? If you sell one of the items where the taxes are changing, will it impact your volume positively? If the answer is yes, you need to prepare. We suggest you review any similar history or perhaps compare sales from regions where taxes are lower. None of you have a crystal ball, but you do need to do the work to assess the opportunity.

Have a discussion with your customers, the retailers. They appreciate it when you are proactive and do some of the work for them. If you both agree there will be a change, even a modest one, take action.

You need to understand in your own business can you produce more and when can this happen? There is not much time, we are at end of November.

Once you establish your own capabilities, make sure the buying or procurement part of their business understands. Orders will need to be adjusted. If you supply the stores direct, you will need to adjust your system to ensure there is enough product out there. Retailers are very focused on in-stock position so you really want to make sure you do everything you can to keep the shelf full and maximize the sales.

If you sell into food service, you might see more change. This is probably one area where it will be easier for consumers to understand the change. Traffic in restaurants might go up and/or people might order that appetizer or dessert they have been avoiding because of rising costs.

Similar to retail, consider the opportunities and talk to your distributors and customers. This is a very busy time for them so any work you can do to reduce the burden and help them maximize the sales will be appreciated.

U.S. tariffs

This one is a bit further out and more volatile. It also could have a bigger impact than a temporary tax holiday. The U.S. is Canada’s largest trading partner and many Canadian businesses have benefitted from exporting to the U.S. According to FCC, Canada exported $29.2 Billion of processed food to the U.S. in 2023. This is a relatively similar market, with the least complicated export logistics and a favourable exchange rate all add up to many tractor trailers and rail cars of Canadian food and beverage going across the border every day.

Certainly, we will have to watch for details and to see if some items like food and beverage are excluded from the sweeping announcements on X. Industry associations, government and industry need to go down this path to understand the impact and what should or could be done to change the U.S. policy. We do know in the past; this administration has used these types of tactics to negotiate and they are perceived as fighting for the home team in the U.S. The announcement appears to be tied to the border and designed to force change.

Perhaps one of the most effective strategies is to talk with industry in the U.S. Industry to industry might result in more productive conversations and in the end, the ability to impact U.S. policy.

If you are exporting a significant amount to the U.S., it is important to invest time and resources to develop a plan. We have certain sectors like seafood, greenhouse production and beef where this market takes significant proportions of our production. Either find new markets, develop more sales at home or hope they exempt your products. Hope might not be the best strategy on this one.

Another consideration is will Canada retaliate? A lot of food comes into Canada from the U.S. We have seen in other sectors such as energy and soft wood lumber a decision by one country will elicit a reply. If you are in a category where there is significant penetration from U.S. products there could be changes there too.

Going forward

It is ironic that both Canadian and U.S. politicians have pointed fingers at the food industry for higher prices. It is decisions like these that increase the price of food and beverage.

In Canada some lead time to plan for a change would ensure industry can respond and serve consumers properly. Now, we are forced to scramble to react when we should be focused on the busiest shopping weeks of the year. If we do not have enough product, we will disappoint consumers and if we have too much, we will increase food waste.

In the U.S. if anyone thinks a 25% tariff will not impact the price of food, they need to think again. If this really does happen, someone has to pay for it. We do not know too many Canadian producers or processors that can absorb a 25% tariff, even with a favourable exchange.

It is obvious politicians do not ask us before they take action. They are more likely to listen to industry and consumers. In the future they should consider the impact of their decisions and forego the rhetoric for more sensible policy that will lead to a long term sustainable and viable industry.

Peter