The escalating trade dispute between the United States and Canada is creating another potential cost pressure for food manufacturers and retailers, with tariffs hitting packaging materials that move through virtually every part of the grocery supply chain.
Canada is preparing to impose tariffs of 15%, 25% and 50% on $27.6 billion worth of U.S. goods beginning Sept. 8, responding to 50% tariffs imposed by the United States on the same value of Canadian goods earlier this month.
The Canadian measures cover a broad range of products, but several categories have direct implications for food and consumer packaged goods companies, including pulp and paper, steel and aluminum. Corrugated cartons, boxes and cases made from paper or paperboard are among the products scheduled to face a 50% Canadian tariff.
For grocery retailers and their suppliers, the concern extends beyond the companies that manufacture packaging. Corrugated boxes, metal cans, aluminum beverage containers and other packaging materials are embedded throughout food manufacturing and distribution, potentially giving higher material costs another route into CPG prices.
Corrugated Packaging Faces Tariff Pressure
The paper and packaging industries are particularly exposed because supply chains in the United States and Canada have developed around extensive, relatively unimpeded cross-border trade.
Canada’s new tariff schedule includes pulp and paper products, with corrugated cartons, boxes and cases among the products scheduled to face a 50% tariff beginning Sept. 8.
The Canadian Corrugated and Containerboard Association has warned that tariffs on an industry with deeply integrated cross-border operations could have consequences well beyond packaging manufacturers.
“Since virtually every product relies on corrugated packaging, disrupting this supply chain would disrupt many others,” CCCA Executive Director Serge Desgagnés said.
That connection is particularly relevant for grocery. Corrugated cases are used extensively to move packaged foods, beverages, produce, and other products from manufacturers and distribution centers to stores.
Higher corrugated and containerboard costs therefore have the potential to move through the supply chain even when the food itself is not subject to a new tariff.
Food Cans and Beverage Packaging Also Exposed
Metal packaging represents another potential pressure point.
Canada plans to increase tariffs on numerous steel and aluminum products to 50% beginning Sept. 8. The United States already has 50% Section 232 tariffs covering steel and aluminum and certain derivative products.
The Can Manufacturers Institute has previously warned that tariffs on metals used to manufacture cans can ultimately increase the cost of canned foods.
The exposure is significant because U.S. packaging manufacturers remain heavily dependent on imported metals. The United States imports nearly 80% of the tin mill steel used to manufacture food cans, according to industry estimates cited by Packaging Dive.
Aluminum presents a similar challenge. Canada supplies roughly two-thirds of the primary aluminum used in the United States, according to The Aluminum Association.
That material is important to a wide range of industries, including the beverage business, where aluminum cans represent one of the dominant packaging formats.
Expanding domestic supply could eventually reduce some of that dependence, but the Aluminum Association has cautioned that bringing additional primary production capacity online will take years.
Another Variable for CPG Costs
The packaging dispute arrives as food manufacturers and retailers continue to manage elevated costs across commodities, labor, transportation and other parts of the supply chain.
Packaging rarely attracts the same attention as the price of beef, coffee, cocoa or other food commodities, but even relatively small increases can become significant when spread across the enormous volumes handled by major CPG companies.
The potential effects also extend beyond primary packaging.
A canned vegetable, for example, depends not only on the steel can surrounding the product but also on labels, corrugated cases, pallets and transportation before reaching a supermarket shelf. Tariff-related increases at several points in that chain can accumulate before the product reaches the retailer.
Some packaging companies have already begun assessing their exposure.
Cascades Inc. (OTC:CADNF) executives said during an Aug. 6 earnings call that the company was evaluating the potential effects of the new U.S. tariffs on Canadian imports and developing mitigation plans. Ball Corp. (NYSE:BALL) executives similarly said earlier this month that they were monitoring tariffs and aluminum prices.
Some companies across the packaging supply chain also are considering accelerating purchases or shipments ahead of the Sept. 8 implementation of Canada’s counter-tariffs, according to reporting, although there has been little evidence so far of widespread frontloading.
Retail Impact Will Depend on Duration
How much of the additional expense eventually reaches grocery shelves remains uncertain.
Manufacturers can absorb some increases, renegotiate supplier arrangements, shift sourcing or attempt to offset higher packaging costs elsewhere. Larger CPG companies also generally have greater purchasing leverage and more sourcing options than smaller manufacturers.
But prolonged tariffs would increase the likelihood that at least some costs move downstream.
The ultimate impact will depend in part on how long the tariffs remain in place and whether manufacturers can offset higher packaging costs through sourcing changes, supplier negotiations or other efficiencies.
For food retailers, the immediate issue is less whether the price of any particular box or can rises than how broadly those increases spread.
Packaging touches almost everything that moves through a supermarket. If the U.S.-Canada trade dispute persists, that makes packaging another input cost for grocers and CPG companies to watch — and another potential source of pressure on food prices.