Tariffs and trade: The direct and indirect impacts for Canada’s food and beverage industry

Contents

• Introduction
• What are tariffs, and who pays them
• Costs, prices, and margins
• Disruptions and competition
• Consumer behaviour
• Regulations and compliance
• Conclusion

If you operate in Canada’s food and beverage (F&B) industry, you’ve likely felt the pressure of shifting trade policies. As the largest market for Canadian food exports, the ongoing trade war with the U.S. poses significant risks to Canada's food and beverage processing industry. Tariffs on exports drive up costs, making your products more expensive and potentially impacting your sales. On the other hand, tariffs on imported goods increase the price of raw materials, packaging, and finished products — squeezing margins and complicating supply chains.

While these pressures create challenges, they aren’t the full story. They also open the door to adapt and find opportunities. Understanding how tariffs influence pricing, competition, and consumer behaviour can help you manage risks, improve resilience, and stay competitive in an evolving market.

Tariffs are essentially taxes that one country imposes on goods and services imported from another country. When a tariff is applied, the importer must pay that tax to the government. In practice, importers usually pass this extra cost along by raising the prices they charge to retailers or directly to consumers. Ultimately, this means higher prices down the supply chain. In some cases, domestic producers may also raise their prices if tariffs reduce competition from cheaper imports. The result can be higher prices for both imported items and domestically produced goods.

The effects of tariffs and retaliatory tariffs extend beyond just the cost of goods, shaping supply chains, pricing strategies, and market dynamics. Below, we explore the key challenges businesses face — and the strategic moves that can help your business respond effectively.  

Increased costs and consumer prices

Tariffs on imported goods often mean higher costs for your ingredients and materials. As a manufacturer, you typically pass on these added expenses to consumers by raising prices. Higher retail prices can reduce demand and hurt your sales. This effect is especially significant in the F&B industry, which relies heavily on global supply chains. For example, tariffs on steel and aluminum have a ripple effect by increasing packaging costs for canned goods.

Lower profit margins

Many F&B businesses operate on thin margins, so they’re particularly vulnerable to cost increases. When your production costs rise but you can’t fully pass them on to the consumers, your profit margins might shrink. In other words, tariffs can directly hit your bottom line. 

Price volatility

Tariffs can lead to price volatility in the market. This is a major concern for F&B manufacturers that rely on commodities to make their products. The sudden cost swings make planning and budgeting difficult.

Supply chain disruptions

Tariffs can disrupt established supply chains. You may be forced to find new suppliers or pay higher prices to your existing ones. These changes can cause delays and increase your operational costs, which in turn might affect product availability for your customers.  

Optimizing corporate structure and trade strategy

Beyond supply chain adjustments, some businesses are taking a more strategic approach — restructuring corporate operations and trade strategies to reduce tariff exposure and strengthen market resilience.

Market disruptions

Tariffs do more than raise costs — they shift market dynamics, disrupt supply chains, and reshape competition. For example, U.S. tariffs on Mexico may drive Mexican produce into Canada, creating an oversupply that pushes prices down and challenges local producers. At the same time, higher import costs force businesses to rethink sourcing, trade routes, and corporate structures to stay competitive, as mentioned above.

Market competitiveness

Tariffs have mixed effects on overall competitiveness. On the one side, domestic producers might benefit if imports become more expensive, since there’s less external competition. On the other, those same domestic businesses often face higher costs for imported inputs, which can hurt their competitiveness both at home and abroad. In short, some Canadian businesses might gain an edge locally while others fight to keep prices competitive due to rising input costs.

Market consolidation

Smaller businesses often struggle with these increased costs more than larger corporations do. Over time, this pressure could drive market consolidation, where only bigger players survive. If your business lacks the resources to absorb higher costs, you may be forced into tough decisions about pricing, staffing, or even whether to continue certain product lines. 

Consumer demand

When your costs go up and you raise prices, consumers feel it. As a result, demand may drop, especially for non-essential or premium food and beverage items. This change in spending habits tends to hit small and medium-sized businesses the hardest. Larger brands might have loyal customers who stick with them despite higher prices, but smaller F&B businesses often lack that level of brand loyalty or market presence. They can struggle to weather the dip in sales that comes with higher prices.

Substitute goods

If certain imported goods become too expensive due to tariffs, consumers might switch to alternative products. This increased demand for substitute goods can drive up the prices of those alternatives as well. Meaning, one product’s tariff can indirectly cause price increases in unrelated products if they become popular substitutes. This can be a bit of a double-edged sword, as it might benefit producers of substitute goods, yet also squeeze consumers who find even alternatives becoming pricey.

Local preference

Tariffs can encourage a stronger preference for local products. Many consumers will choose locally produced goods to avoid the higher prices of imported items. This shift benefits Canadian producers by boosting demand for home-grown products. However, it also means increased competition among local producers, as more businesses focus on the domestic market and vie for the same customers.

Brand perception

In today’s market, how consumers perceive your brand can make a big difference. With a growing preference for locally made products, communicating your Canadian identity can help strengthen trust and loyalty. If consumers aren’t aware of your local roots, they may assume your products are imported and opt for competitors who emphasize their Canadian brand story. Showcasing your origins — through packaging, marketing, and messaging — can help reinforce your place in the domestic market.

Navigating new regulations

Changes in trade policy often come with new rules and regulations that you need to follow. Keeping up with updated food safety standards or other requirements in your export markets can add complexity to your operations. Many businesses face challenges in understanding and complying with new tariff rules, which can lead to higher administrative and legal costs. In short, the regulatory burden increases when tariffs and trade policies change, and it can be especially tough for smaller businesses to manage.

Interprovincial trade

Not all responses to tariffs are negative. To help offset the strain of international tariffs, Canada’s federal and provincial governments are working to remove certain interprovincial trade barriers. This signals a strong commitment to enhancing trade within Canada, making it easier to sell your products across provincial lines.

Cross-border trade

Tariffs can also strain cross-border partnerships and trade agreements. The uncertainty and added costs may complicate long-term relationships with suppliers or customers in other countries. You might find that negotiating deals or planning future partnerships becomes more difficult when the rules of trade are in flux.

Investment hesitation

An uncertain economic environment can make investors more cautious about the food and beverage sector. This means there may be less investment capital available for your business. Difficulty in securing funding can limit your ability to expand operations or pursue innovations. Tariffs and trade tensions might not only increase costs today but also make it harder to finance tomorrow’s growth.

Delayed launches

Tariff-related challenges can also slow down your new product launches. Higher costs or supply chain disruptions might force you to delay introducing new products to the market. These delays can hold back your growth and cause you to miss timely opportunities (for example, a seasonal trend or a gap in the market).

Product reformulation and access to fresh produce

To cut costs, some businesses might change their product recipes to use cheaper ingredients. The downside is that these substitute ingredients could be less healthy. Indirectly, tariffs might impact consumer health and nutrition by pressuring businesses to opt for lower-quality formulas or additives to save money.  

If imported fresh produce becomes too expensive, it might be harder for consumers — especially in regions that rely on imported fruits and vegetables — to access healthy food options. In other words, healthy choices may become pricier or scarcer in certain areas, an unfortunate side effect of trade barriers.

Ongoing trade tensions are creating uncertainty for Canada’s food and beverage sector, making it harder for businesses to plan for the future. To navigate this complex environment effectively, it is crucial to understand the wide-ranging impacts of tariffs, including higher production costs, supply chain disruptions, changing consumer behavior, and regulatory challenges. On the positive side, governments are exploring support programs, grants, and incentives to help mitigate the impact of tariffs on businesses and workers.

Ultimately, staying agile and adaptable will be key. By planning and responding proactively to tariff-related challenges, your business can soften the blows and even leverage some of the opportunities that arise in the current trade environment. With careful strategy and a focus on innovation, you can position your business to withstand the turbulence and come out stronger.