What Do Tariffs Mean for Food Costs?

With the second Trump administration proposing tariffs on all imported goods, including food, it’s essential to understand the implications. A tariff is a tax on imports, increasing costs for businesses and consumers by raising prices and limiting quantities available in the U.S. Tariffs are trade barriers that raise prices and reduce available quantities of goods, in thiscase, food imported from other countries, for U.S. businesses and consumers.

From 2020 to 2021, U.S. food imports increased by nearly 4%, followed by an almost 6% rise from 2021 to 2022. In 2023, however, growth slowed to 1.95% (data in linked Excel sheet). Although imports have grown over the past four years, the pace has recently declined, showing some potential for stabilization or volatility ahead.

Potential Impact on Restaurant Costs

Restaurants that source ingredients from outside the U.S. could feel the effects of a proposed 20% tariff on imported goods. For example, consider a restaurant buying 100 pounds of coffee beans at $10 per pound. Without tariffs, the cost is $1,000; with a 20% tariff, the price would rise to $1,200. This simple example illustrates how tariffs could significantly raise expenses on high-demand imported ingredients.

Possible Responses to Rising Costs

One way restaurants may address rising costs is by adjusting their prices to reflect the higher cost of ingredients. However, price increases need to be strategic; blindly raising menu prices could deter customers and harm your bottom line.

Some operators may assume that ordering from a distributor shields their restaurant from tariff-related price hikes. While distributors may absorb some costs initially, they typically pass these expenses down the line. Consider this: when has a distributor absorbed increased costs without impacting your business?

To help manage these fluctuations, restaurant operators should explore the option of setting up long-term contracts with their distributors. These agreements can lock in pricing, providing a buffer against sudden cost increases and helping to stabilize expenses over time. However, it’s essential to negotiate carefully, as terms can vary widely. Taking a proactive approach now could protect your restaurant from unexpected financial strain if tariffs become more widespread.

Final Thoughts

Tariffs on imported goods, including food, could create a ripple effect throughout the industry. As restaurants grapple with increased ingredient costs, distributors, operators, and customers will all share the impact. While some restaurants may find alternative suppliers or make strategic menu price adjustments, flexibility and informed decision-making will be critical to managing these challenges. Staying adaptable and aware of market conditions can help restaurant owners maintain profitability and continue delivering value to their guests despite the changing landscape.

Mark can be contacted here.