Supply Chains Kinked by Tariffs

Food industry supply chains have gone from the frying pan of COVID into the fire of unpredictable tariff policies, along with other challenges like climate change, according to panelists at a Hot Topics Studio session on Tuesday at IFT FIRST.

The disruptions of COVID ranged from a lack of certain raw materials previously sourced abroad due to ports being shut down to labor shortages that clogged distribution networks, said Darryl Riley, president of consultancy TQSM LLC, who participated in the panel, titled “How to Navigate Supply Chain Volatility,” moderated by Julie Larson Bricher, science and technology editor at Food Technology magazine.

Those disruptions revealed how brittle supply chains had become in an era of reduced inventory and leaner, “just-in-time” shipping, said Arlin Wasserman, founder and managing director of the consultancy Changing Tastes. “Some of the things that made the last five to six years so challenging were self-inflicted,” he said. In addition to COVID, the industry has known for some time that climate change would make harvests less predictable, impacting quality and price. And the movement of some sourcing to geographic areas like Africa and the Middle East has led to “non-state actors terrorizing shipping,” he added.

In the midst of these challenges, the food industry finds itself caught in the crossfire of the Trump administration’s mercurial tariff policies, Wasserman said. “When trade policy in the United States changes as fast as someone can tweet, we cannot have a meeting to decide what to do in that same time horizon,” he said. “After figuring out how to live with craziness, the craziness just got more unpredictable.”

The MAGA agenda of “in-sourcing” production to the United States has meant that food ingredients need to be found domestically more often, Wasserman said. He suggested that since it’s impossible to know how trade policy is going to change and when, food companies should prepare for the worst-case scenarios.

But Wasserman sees a couple silver linings for the industry. One would be taking advantage of “opportunity buys” when there are interruptions in tariffs and stocking up on ingredients sourced overseas. “Let’s harvest the crop in between the rains,” he said. Secondly, the reciprocal tariffs being levied by other countries, to which U.S. producers previously exported, means those domestically produced goods will be “incredibly cheap for a while,” he added. “Sadly, the flip side of tariffs is that American farmers are not going to have a big enough market. All they can do is lower prices. It’s a forced domestication of our supply chain.”

To navigate this unpredictability of sourcing, Riley recommended that companies develop “flex formulas” that enable them to potentially exchange similar ingredients for different products depending on what’s available at any given moment. “And then, in parentheses, you can write [on the label], ‘May contain one of the following,’” he said. “With the [substitute] ingredients you use, you may pay more, but you’re weighing the difference between no product, or a product you’re going to have less margin in.”

But at a time when consumers are increasingly curious about what’s in their food, Wasserman cautioned against pushing this type of substitution too far and made an alternative suggestion. “You don’t want to have a box that says, ‘Our snack food may contain these six oils, eight grains, and 20 or 30 other specialty ingredients,’” he said. Instead, “production lines need to be more nimble in switching. That’s a minor change that keeps the ingredient list shorter.”

The impacts of climate change such as heat exposure and droughts that put pressures on certain types of ingredients will prompt the need for some of that same manufacturing flexibility, Riley said. “In the past, we had very rigid processes,” he said. “If you worked for a large company, the objective was to run the product line for as long as you can, so you don’t have to worry about changeovers. … We may need shorter runs and more flexibility to satisfy consumer demand.”

The ongoing tariff situation might disrupt companies’ ability to single-source ingredients, a common tactic to gain economies of scale, Riley said. “We have to think about multiple suppliers,” he said. “That’s going to be inefficient in terms of pricing.”

But Wasserman cautioned against going too far with seeking redundancy in ingredients, in part given the toll it could take on rain forests and biodiversity in Mediterranean and equatorial regions.ft