How are Canadian food and beverage businesses navigating the impact of U.S. tariffs?

United States tariffs have introduced considerable uncertainty in the food and beverage sector. While many initially believed the tariffs were simply a short-term negotiation tool, these tariffs remain in place months later and are making significant impacts on Canadian food and beverage businesses. Most companies have shifted their perspective from waiting for the storm to pass to understanding tariffs may be in place for the foreseeable future.

Businesses are now updating their strategies to mitigate losses and remain competitive in a volatile market. Let’s discuss the major developments impacting the sector, explore the impact on Canadian food and beverage businesses, and review how businesses are responding.

What is the current state of the food and beverage landscape?

Tariffs have caused considerable volatility in pricing and increased the cost of doing business in the U.S. These two major developments are having a significant impact on the Canadian food and beverage landscape:

Price volatility

Tariffs have introduced significant volatility into the food and beverage sector. While quotes were previously valid for 30 days, the rapidly changing nature of U.S. tariffs now make quoted prices valid for a much shorter duration.

This is forcing more food and beverage businesses that purchase and process raw materials to think like commodity futures trades. Businesses are more hesitant to place large purchases and are managing their inventory and work in progress more granularly as tariff-related price changes may impact the final sale price of the product.

Cost increases

Food and beverage businesses that rely on sales in Canada and the U.S. are also struggling to navigate tariff-related shifts in the market. While many businesses had been profitable in both the U.S. and Canadian markets, tariff spikes may have caused these businesses to now sell products at a negative margin in the U.S., making them unsustainable.

Food and beverage businesses are rethinking their strategies to adapt to sudden and significant tariff increases. Selling products at a loss in the U.S. market may make these businesses unsustainable, but many cannot simply increase sales in other markets to offset these losses. This is causing many businesses to make difficult decisions, including selling products at a negative margin to maintain their U.S. market presence. 

What sector-specific trends are emerging?

Our advisors have observed these trends in the food and beverage sector:

Buy Canadian initiative

The Buy Canadian initiative has increased both consumer awareness and support for Canadian products. Retailers are now identifying made-in-Canada products on shelves and more Canadians are choosing to support local businesses by buying Canadian-made goods. This shift in consumer behaviour has helped businesses gain a competitive edge in the Canadian market and maintain sales and market share despite tariff-related challenges.

Different impacts on different regions

Some food and beverage businesses have been more impacted than others based on their proximity to the U.S. border. Canadian businesses close to the U.S. may sell most of their products there due to the ease of shipping products across the border.

However, the cost to import these goods to the U.S. may no longer be feasible due to tariffs — causing Canadian businesses located close to the border to lose a significant amount of revenue. Businesses located farther away may not have the same connections with the U.S. and are therefore less impacted by tariffs.

Agility in the consumer packaged goods sector

The consumer packaged goods sector has been more agile in responding to U.S. tariffs. It is easier for businesses to ship these products to other locations due to their long shelf life than it would be for business specializing in fresh produce. This has better positioned businesses in this sector to explore expanding into new markets outside the U.S. in response to tariffs.

Wine industry increases sales

Many provinces have stopped selling U.S. wine, which has increased sales for the Canadian wine industry. This has had a positive impact on wine businesses located in Kelowna, the Lower Mainland, and Southwestern Ontario. However, Canadian wine businesses may need to scale operations to keep up with increased demand.

Rethinking growth strategies

Expanding into the U.S. market used to be a sign of success for Canadian food and beverage businesses — providing access to a new market and stimulating new growth. However, many businesses are now hesitant to expand into the U.S. market and are rethinking their growth strategies to consider markets outside the U.S.

How are food and beverage businesses responding?

Canadian food and beverage businesses are exploring new strategies to mitigate the impact of tariffs. Here’s what we have observed in the sector:

Collaboration with supply chains

Food and beverage businesses are working with supply chains to distribute the financial impact of U.S. tariffs. This strategy involves each entity making slight adjustments to their pricing and margins to spread the financial burden across the supply chain and ensure that no member is disproportionately impacted.

Farmers may accept slightly lower prices for their products, manufacturers may reduce their margins, and retailers may increase prices slightly for consumers. This helps all members of the supply chain balance tariff-related cost pressures with maintaining the quality of their products and customer loyalty.

Investing in efficiency

It is not always feasible to spread tariff-related costs throughout the supply chain. Therefore, food and beverage businesses are also exploring new ways to increase efficiency to deliver the same products at less cost to maintain profitability.

Many are considering how to implement artificial intelligence (AI), streamline production through automation, and leverage data and analytics to improve forecasting and inventory management. This enables businesses to lower operating costs, maintain competitiveness, and build resilience as trade-related pressures continue to impact the sector.