Ongoing trade tensions, inflation-weary consumers and an evolving regulatory landscape are complicating supply chains and raising the prospect of higher food inflation later in the year, explained Tom Bailey, senior analyst of consumer foods at Dutch banking and financial services company Rabobank.
The Trump administration’s tariffs are projected to increase food inflation by mid-single digits and create tension between food producers and retailers, Bailey explained. Suppliers will absorb price increases in the short term, but they cannot handle the increases forever, he added.
“Suppliers will want to work as hard as they can to shoulder some of the pain, maintain market share and stay in a good position on shelf and be competitive. So, that is within a six-month window. Beyond that you start to see margin compression to a point where you have to take more price and recapture any losses,” Bailey elaborated.
Rabobank is anticipating that these trade tensions will persist through 2025, complicating supply chains further and increasing consumer prices, Bailey said.
Additionally, countries are cutting the US out of global trade discussions, like in the case of Mexico signing a trading partnership with the EU earlier this year, Stephen Nicholson, global sector strategist of grain and oilseed for Rabobank, previously stated.
“Zero-sum game tactics are coming into play,” Bailey said. “We anticipated a lot of this to happen within six months and then will be resolved. But the more the rhetoric heats up, the more I’m thinking this might last up to a year.”
Consumer sentiment dims amid tariff concerns
Consumer sentiment continues to dip amid tariff concerns and the prospect of a recession. The Consumer Sentiment Index dropped to 64.7 in the February survey, declining nearly 10% from January, as consumers expect inflation to worsen amid policy uncertainty, according to the University of Michigan.
Most consumers (73%) said tariffs increase food prices to some degree, according to Purdue University’s Consumer Food Insights Report, which surveyed more than 1,200 US consumers.
“When it comes to the inflationary impacts of tariffs on food, it is still mid-single digits. But when we are talking about that on top of cumulative 30% inflation since 2020, every dollar counts, and that is where things become tricky for US consumers.”
Tom Bailey, senior analyst of consumer foods at Rabobank
Purdue University also asked consumers to rate out of 10 points how much influence the government has on food inflation, with zero being the least influence and 10 being the most influence.
The average consumer rating was 6.9, showing that shoppers believe “the government has moderate influence over the price of food,” Joseph Balagtas, professor of agricultural economics at Purdue and director of the Center for Food Demand Analysis and Sustainability, said in a statement.
“When it comes to the inflationary impacts of tariffs on food, it is still mid-single digits. But when we are talking about that on top of cumulative 30% inflation since 2020, every dollar counts, and that is where things become tricky for US consumers,” Bailey said.
Food additive bans can further complicate supply chains
The Trump administration’s embrace of HHS Secretary Robert F. Kennedy’s Make America Healthy Again (MAHA) platform has global supply chain implications as well, Bailey said. However, many MAHA elements - cleaning up the food system, eating more whole foods and investing in regenerative agriculture - have bipartisan support, he noted.
“Michelle Obama was trying to make school lunch programs healthier a long time ago,” Bailey said. “Conceptually, healthier food is a bipartisan topic, and what we have now is Republican language in healthier foods.”
Food additives receive bipartisan scrutiny
Both sides of the political aisle are enacting regulations to ban various food additives.
Currently, the USDA and HHS are "conducting a line-by-line review of the Scientific Report of the 2025 Dietary Guidelines Advisory Committee" and stated the agencies "are committed to releasing the final guidelines ahead of its statutory deadline," following the inaugural meeting of the MAHA commission. This month, Kennedy also called for the elimination of self-affirmed GRAS, a process which a food ingredient company notifies the government that its ingredient is safe.
Earlier this year, the FDA under the Biden administration rescinded its authorization of Red No. 3 due to a legal technicality and animal studies, teeing up reformulations for many food and beverage companies. Additionally, California Governor Gavin Newsom issued a "crackdown" on ultra-processed foods, which will include adding warning labels on ingredients the state considers pose a "health risk," starting on April 1.
CPG companies are preparing for food additive bans, securing new ingredient providers in the process, due to various state laws, Bailey said.
California kicked off the spree of state regulations related to banning various additives like Red No. 3, and Illinois and Pennsylvania followed behind with their own proposed regulations, which ultimately did not pass.
“You are not going to have a separate supply to California than the rest of the US. Some of this was in the works a little bit, but it is certainly expedited, and could potentially - depending on how things proceed - more dramatically change our food system,” Bailey said.
Additionally, food additive restrictions on Supplemental Nutrition Assistance Program (SNAP) and school lunch programs could impact food and beverage manufacturers and the broader economy, Bailey said.
Kennedy is proposing banning certain ultra-processed foods (UPFs) and beverages from the SNAP program, the AP reported.
“Close to 12% of Americans are on SNAP payments - that is a big chunk of consumers that would immediately be restricted on buying certain ingredients that had dyes or preservatives - that would be a bit more of a shock,” he elaborated.
Can US manufacturing keep up with demand?
Consumer demands for clean label and value-focused foods - largely private label products - are converging to create unique supply chain obstacles, Bailey explained.
Food manufacturers are preparing for food additive bans, but they might need to import European-made products to meet consumer demands and regulatory mandates in the short term, he added.
Additionally, Europe maintains a robust private-label manufacturing infrastructure, which the US might need as the private-label market grows, Bailey noted.
US private label market on the rise
The US private label food and beverage market is expected to reach new heights in the next decade, growing from its current market share of around 20% to 25-30% within the next 10 years, according to separate Rabobank analysis. Private label brands are meeting consumer demands for value, while retailers continue to invest in the branding and value proposition of these products.
“Let’s take a bag of chips in the US versus the UK, and you have around 40 ingredients for a bag of chips in the US, and you have closer to 20 in the UK for the same product,” Bailey said. “It begs the question, ‘Does that mean we will be importing more - trade war aside - products directly from Europe on the back of what is already happening with private label?’”
“And does it also extend the other way, where once that we establish our manufacturing and our ingredient compositions that we start exporting more to Europe at the same time?” he added.
Increased demand for private-label and clean-label products will require investments in manufacturing, bumping the food industry up against other industries to compete for real estate, talent and other resources, Bailey said.
“The food industry is not just competing amongst itself. It is competing against automotive. It is competing against tech. And these are big, highfalutin sectors that have a lot of money,” he elaborated.
