Guest article: The real impact of tariffs on US produce prices

December 20, 2024

Peter Tasgal is a strategic consultant to the food and agriculture industries and co-founder of Farmbook Project, based in Boston, US.

The views expressed in this guest article are the author’s own and do not necessarily represent those of AFN.

If 25% tariffs, as threatened by the incoming Trump Administration, are implemented on produce imported into the US from Canada and Mexico, produce prices at the grocery store are likely to increase between 15% and 25%.

This is in the face of the incoming president being quoted in August 2024 that if he wins “grocery costs will come tumbling down.” More economically vulnerable Americans, many of whom were anxious about their economic circumstances, voted heavily in favor of the Trump ticket.

The threatened tariffs would be contrary to the US-Mexico-Canada Agreement (“USMCA”) and would affect all imported goods. According to the Office of the United States Trade Representative, US goods exports to USMCA were $681 billion in 2022 and imports were $891 billion during the period. In 2022, 25% tariffs would have equated to $223 billion.

The USMCA, the successor to the North American Free Trade Agreement (“NAFTA”), regulates the flow of goods between the three countries. USMCA was proposed by President Trump in November 2018, signed by each country as of March 2020, and implemented on July 1, 2020. The official renegotiation period for the USMCA begins in 2026.

The past has shown that tariffs have often been more a tool for negotiation than anything else, and in 2025, tariff levels are likely to be far lower than the threatened 25% for a variety of reasons, including: reduced immigration levels; the effect on purchasing power of Americans; and Canada and Mexico’s ability to retaliate.

Consumers, as well as those along all segments of the produce supply chain, should be prepared for tariffs of 25%, but expect far lower levels, if any.

Power of the threat

Prior to the first Trump presidency, tariffs were threatened on specific items. They were actually imposed in the first quarter of 2018 on solar panels (30% to 50%), washing machines (30 to 50%), steel (25%) and aluminum (10%); they were lifted for imports of steel and aluminum from Canada and Mexico in May 2019.

These tariffs were largely protectionist policies and were never directed towards agricultural programs.

In July 2018, the Trump administration brought back the Commodity Credit Corporation (“CCC,” part of the USDA), established during the Great Depression. Programs funded by the CCC today include “Domestic farm income, price support and conservation programs under various statutes including the Agricultural Act of 2014.” According to the USDA, farmer payments from the CCC constituted more than one-third of total farm income in 2019 and 2020.

Actual tariffs ended up being far less and for a shorter period than threatened. In fact, the threat of tariffs was far more of a tool used in negotiation than implemented over the long-term. Most of the tariffs that remained were related to protecting US industries and jobs versus acting as a revenue driver for the US economy.

The retail price impact of tariffs

I would estimate the impact on the retail price of produce in the grocery store to be a maximum of 15% to 25%. This is because any tariff would at a maximum be imposed on the wholesale cost of the product, less on any logistics and/or processing done once the product landed in the US.

As an example, tomatoes grown in Mexico typically exchange hands at distribution centers in Texas and other locations close to the border. Once exchanged, processing, sorting, packaging and further logistics are typically handled in the US.

The wholesale cost of a tomato, prior to entering the US, I would estimate is no more than 40% of the price paid at retail for that tomato.

Counter to reducing prices at the grocery store

Implementing tariffs runs counter to the idea of reduced prices at the grocery store. According to the USDA Economic Research Service, as of 2021 60% of fresh fruit and 38% of fresh vegetables (excluding potatoes, sweet potatoes, and mushrooms) were imported. Related to produce sourced from Mexico and Canada, the ERS notes that, “In 2022, Mexico and Canada supplied 51 percent and 2 percent, respectively, of U.S. fresh fruit imports, and 69 percent and 20 percent, respectively, of U.S. fresh vegetable imports in terms of value.”

Implementing tariffs on imported fresh produce will increase prices to consumers and cause people, especially in lower-tiered demographics, to make less healthy choices at the supermarket.

Increase domestic sourcing vs reduced immigration

The US imports a large percentage of its produce for two primary reasons: it’s the most cost-effective manner of bringing produce to US consumers, and other regions in the world (especially those close to the equator), have climates where a full range of products can be grown throughout the year.

Some of the supply of produce can be switched from being imported to domestically grown. However, the impact will be higher prices and less variety available to the US consumer.

Prices will be higher not only because the cost of labor is lower in many other regions of the world, but also because much of the labor on farms is immigrant labor, which is likely to be reduced dramatically under the Trump administration.

Add to this the fact that, according to the USDA, the average farmer in the US in 2022 was 58.1 years old, and the infrastructure is not in place to significantly increase farming domestically. As an example, the time to build a commercial greenhouse from a blank slate is likely 1 to 1.5 years.

Product variety will be reduced, as the US does not have all environments during all seasons of the year. Peaches and plums, as an example, can’t be grown outdoors during the winter in any area of the US. Additionally, especially in Mexico and Canada, great infrastructure has been built over decades (greenhouses and outdoor farms), which will not be replicable in the near term without great investment. The impact will be domestic farms working to reach efficiency levels versus optimal varieties.

Retribution by Canada and Mexico

Any tariffs implemented by the US will cause retribution by the countries from which the tariffed products are sourced. According to the US Trade Representative, the US goods and services trade deficit with Mexico was $131.1 billion and $53.5 billion with Canada in 2022. These trade deficits provide leverage for the US to implement tariffs, so long as trade is for comparably necessary items.

In Canada, for example, much of the trade deficit comprises energy and power. In this era of artificial intelligence, massive amounts of power are needed to train large language models and for related data centers. On December 11, 2024, Doug Ford, the Premier of the province of Ontario, said he would cut off energy supply to the US and would put together a list of items for which to impose retaliatory tariffs. During 2023, Ontario provided electricity for approximately 1.5 million US homes.

In 2023, Mexico was the US’ largest goods trading partner, surpassing China. General Motors, for example, is the largest auto manufacturer in Mexico. The auto manufacturer exports approximately 700 thousand cars per year, most of which are sold in the US and Canada. In terms of produce, it is estimated that Mexico supplies nearly 70% of fresh tomatoes sold in the US.

Greatest impact on products from China

Tariffs are very likely to increase during the second Trump administration. However, the greatest impact of tariffs is likely to be on product sourced from China, from where the US has a large trade deficit ($279 billion in 2023) and there is an ability to source from alternative regions.

Compare this to a trading partner like Canada, a country rich in power and raw materials, which is going to be increasingly critical to the economic success of the US. The need for power has increased and is projected to increase dramatically in the near-term.

The Trump administration is going to be highly focused on the US economy, jobs for US workers, and the purchasing power of its citizens. The administration will work to balance high levels of employment while limiting inflation that affects ordinary Americans. It is for this reason that I believe tariffs will be more of a threat than anything else to Canada and Mexico, and that more of the implementation will be focused on China and more distant trading partners.

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