Thank you to our speakers—Mario A. Torrico of ArentFox, Scott Jensen of Kosmos Q, and Tom Gellert of Atalanta Corporation—for sharing their thoughts and insights.
What are the logistics of tariffs being imposed? Who pays whom?
Scott Jensen, Kosmos QThe Specialty Food Association is made up of people that are manufacturing foods, marketing foods, distributing foods, importing foods -- and many people have never had a tariff imposed. Can you explain where does this money go? Where does it get excised from? Is it at the port where it's coming in and who takes that money?
Mario Torrico, Arent Fox
Under US customs law, it's the importer of record who is essentially responsible for paying the duties associated with those entries. The importer of record has the legal liability to make sure they are declaring the correct country of origin and paying and remitting to customs the associated duties.
What is the impact of international trade tariffs in terms of prices for your business, your partners, and your customers?
Tom Gellert, AtalantaObviously, as an importer, we're going to have higher costs. When tariffs go up, it impacts the cost of goods. Naturally we have to pass these pricing costs to our customers, and it eventually gets passed on to consumers.
But we operate with very long-standing relationships with our suppliers and we're all in this together. So, I think we would work with our partners to see if they have any relief in the pricing they give us, so we can maintain our products on-shelf. We work with our customers because they're going to have to take some of that on. And we would share some of that as well.
So, it's working with your partners as best as you can to mitigate the impact of tariffs with reductions in pricing from the supply side. In reality, customers are going to have to see price increases and we may have to tolerate some margin decreases as well. Everyone's got to share.
There will be rising costs and it's going to impact the consumers. Hopefully, the government is aware of those sensitivities with regards to food.
Scott Jensen, Kosmos Q
What are the best practices of talking to your buyers when it comes time to raise your price because everyone can't absorb 100% of what's going on, on the cost side?
Tom Gellert, Atalanta
We didn't have the solution to that, but we certainly talked about it. I think you have to get ahead of it and be transparent as possible and communicate with the buyers. Keep those conversations, be frank with your buyers that you may not be able to go into long term commitments because your cost structure will change, and those pricings are subject to those to those cost changes.
A lot of retail buyers know that it's hard to change pricing frequently. So, one tariff strategy we heard of is 2% a month or 5% a month and scaling up. That is difficult in terms of implementation in terms of pricing to customers. But I think when you are looking at your buyer community, you need to be transparent, and have constant communication. A good organization is in front of their customers all the time anyway. And they need to be prepared so that when cost structures change, we have to have conversations about pricing.
I think the transparency part of the discussion with the buying and category manager community, they are going to have conversations with many more people than you do. So, there's a one-way flow of information, and we as small manufacturers or sellers sometimes lack the information. You are afraid to raise your price because you think the dynamics of the retailer are such that they won't appreciate what is happening. But it's a pretty broad-based known entity that's happening right now.
And so, getting ahead of it, reaching out to them in in a query, like, ‘Hey, this is happening to us for the first time. We are doing a lot of business with you, Buyer A. We would like to keep in more constant communication with you.’
What should food businesses be doing now?
Mario Torrico, Arent FoxThere are certain things companies can start doing, even though we're operating under this uncertainty, and that includes looking at your HTS codes to make sure they are accurate. And if you haven't done that sort of assessment and analysis, now is a good time.
If you have products that go through multiple countries and undergo different manufacturing processes, determine what your country of origin is, because that can dictate whether it's going to be subjected to tariffs on China or Mexico or Canada or wherever, right? Then you can also start talking to your suppliers and looking at your supplier agreements because, as you mentioned before, is it going to be a cost-sharing activity?
But the threat of tariffs is a good moment to have those frank discussions with your suppliers to say, “How are we going to mitigate this or what is the plan of moving forward? If you have force majeure clause, does it contemplate an increase in tariffs? And if so, how much?”
Scott Jensen, Kosmos Q
I'd say also where the rubber meets the road right now is on your supply chain of raw materials. Particularly, you have to have a secondary set. And if the primary one is giving you very good quality for a low price and now, they are going to be met with significant tariffs, you don't want to wait until that happens to have a relationship with an alternative supplier. Best practices are giving 10/15/20 percent of your business to someone already and you are not having to start that relationship from ground one because you are in desperation. You already have a longer-term relationship with them. You are just applying a higher level of purchasing from them with someone that you already have a relationship with. So that's a definite best practice.
As new information becomes available, SFA will continue to provide updates for our members to help navigate these uncertain times.