As companies work to strengthen and adapt their supply chains in response to the challenges posed by the COVID-19 pandemic, the unexpected introduction of tariffs has created new obstacles, particularly in the food industry.
Victoria Gutierrez, the chief merchandising officer at Sysco, a global food distributor with nearly $79 billion in annual revenues, has been closely monitoring the potential impacts of tariffs. With President Trump’s warnings about hefty tariffs on imports from Mexico, Canada, and China, Gutierrez and her team began reviewing Sysco’s extensive network of suppliers to assess how these tariffs could affect their inventory.
“Fortunately, the disruptions caused by the COVID-19 pandemic had already prompted us to diversify our suppliers and, in some cases, duplicate them,” Gutierrez said. “But avocados? That’s a different story.”
The primary issue lies in the fact that Mexico, the world’s largest producer of avocados, supplies nearly all of the fruit consumed in the United States. “Can we meet full U.S. demand for avocados? No,” Gutierrez acknowledged, highlighting that limited domestic avocado production during winter months further complicates the situation.
The tariffs became reality on Tuesday, with the Trump administration imposing a 25% tariff on imports from Canada and Mexico, in addition to the 20% tariffs on goods from China. These levies, on top of those established during Trump’s first term, sent shockwaves through industries reliant on imports, including food distributors like Sysco.
Before the tariffs were officially enacted, companies like Sysco scrambled to mitigate the impact by building up inventories, especially for non-perishable goods, or by seeking alternative suppliers from countries not affected by the new tariffs.
“We have millions of pounds of coffee sourced from Mexico,” said Will Ford, COO of Westrock Coffee, which supplies private-label coffee to chains such as McDonald’s and Walmart. “We’re exploring other Central American sources like Honduras or Guatemala as potential replacements for Mexico.”
While non-perishable goods like coffee or tequila can be stockpiled, perishable items like avocados present a more complex challenge. Companies in this sector are now faced with a difficult choice: absorb the added costs from the tariffs or pass them on to consumers.
Chipotle, which sources half of its avocados from Mexico, has stated that it will not immediately increase prices, despite the tariff. “Our intention is to absorb these costs,” said Scott Boatwright, Chipotle’s CEO, in an interview with NBC Nightly News. However, Boatwright also noted that should costs continue to rise significantly, price hikes could become necessary.
In contrast, Target’s CEO Brian Cornell suggested that the retailer would likely increase prices on fruits and vegetables imported from Mexico in the near future.
Analysts have cautioned that many companies may struggle to pass these tariff costs onto consumers, particularly in an environment where inflation is already affecting purchasing power. Some companies, such as those in the packaged food sector, may find it more prudent to absorb at least part of the tariff costs to avoid alienating price-sensitive customers. According to S&P Global Ratings, these companies might face difficult decisions about whether to absorb the costs or risk losing market share.
In recent years, supply chain managers at large corporations were primarily focused on finding the lowest-cost producers or those that could demonstrate ethical and sustainable practices. However, with new tariff-related pressures mounting, companies are now adjusting to a new reality that demands flexibility and resilience.
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