Trade Tensions and Environmental Concerns Create a Perfect Storm

January 2019

Tariffs’ Impact on Food and Beverage Landscape

In September, Walmart wrote to U.S. Trade Representative Robert Lighthizer voicing their concern about the potential impact of proposed duties (tariffs) on U.S. manufacturers and exporters. In my view, they correctly highlighted challenges associated with restructuring global supply chains to offset the tariffs. They additionally discussed their recent commitments to purchase more U.S. manufactured products to stimulate job growth while also mentioning the potential impact of the current proposed tariffs, saying:

“Unfortunately, the proposed tariffs have the potential to undermine these reshoring initiatives. Many manufacturers rely on component parts from China to assemble and finish production in the United States.”

At Sensient, we are very familiar with the challenges outlined by Walmart. While virtually all of our FD&C colors are manufactured in the United States at our St. Louis facility, some of the main raw materials used in dye and lake production are sourced from China. For example, on September 24th, ten percent tariffs were imposed on many feedstock materials. Although non-China sources are available as a substitute, adjusting global supply chains require time and agility. It’s also worth noting that most alternate sources are generally more expensive, especially in the near term.

Many food and beverage manufacturers are understandably anxious about the possibility of an increase in tariffs to the twenty-five percent level. While U.S. inflation has stayed in check throughout the recent economic cycle, it is not hard to imagine the tariffs pushing up consumer prices.

The Effects of China’s Stricter Environmental Standards

Trade tensions are not the only concern across the food and beverage industry; many companies, including color manufacturers, are experiencing the impact of China’s recent enforcement of stricter environmental regulations.

ship-harbor

At Sensient, we view this action as a very positive and necessary step towards a more sustainable future.

According to reports, there are certain regions, notably the Yangtze River economic belt, where environmental issues need to be addressed.

Earlier this year, the National Development and Reform Commission (NDRC) announced it would close chemical plants in environmentally-sensitive areas alongside the Yangtze to protect drinking water resources and ecosystems from wastewater disposal. Some enterprises would additionally be encouraged to relocate by 2020.

Unfortunately, some major producers of raw materials used in dye manufacturing have been closed without a relocation plan. The supply decline of select materials has created globally tight inventories in addition to higher costs.

lakeside

On a positive note, these changes are extremely beneficial for the sake of our environment.

However, the combination of trade tensions and reformed environmental changes have created a tight supply situation with escalating cost pressure. There is much uncertainty over the timing and even possibility of change regarding the improvement of raw material supply issues.

Sensient’s priority is to ensure stable color supply for food and beverage manufacturers, and I am proud of achieving this objective amongst this perfect economic storm.

As we move into 2019, there is good news—our growing agronomy program continues to shine brightly in our supply chain story.

It’s paving the path to better performing natural food colors and greater cost-efficiency.

Related Posts

Petco to Stop Selling Pet Food With Artificial Colors, Flavors, and Preservatives

France Poised to Ban Titanium Dioxide

Skittles Internet Debate: Do All Colors Taste the Same?

Is Glow-in-the-Dark the Next Food Trend? Meet the GLO-NUT

Mothers Know Best: How Moms are Influencing the Food and Beverage Industry

How Big Food is Taking on a World of Picky Eaters

Kraft Heinz Doubles Oscar Mayer’s Marketing Budget to Promote Natural Ingredients

The Magically Colorful Unicorn Trend

A Colorful Twist on a Sweet & Salty Snack

Food Color Effect on Older Consumers

Dunkin’ Donuts and Baskin-Robbins Removing Artificial Colors by End of 2018

Food Color is as Important as Taste

Myth or Fact? Artificially-Colored Foods Are Bad for You

Further Concerns Over the Safety of Titanium Dioxide

Panera is 100% Additive-Free

Formulators Taking Solution-Approach to Natural

Consumers Emphasizing Ingredients on Food Labels

#TBT A Look Back at the Co-Creation of the Food Coloring Business

8 Foods You Would Never Guess Were Artificially Colored

Color of Food Guides our Brains

Naturally Coloring the Beverage Industry

Are Autumn Leaves the Next Source of Natural Color?

Food Colors Market to Reach $3.75 Billion by 2022

Spirulina Algae: Next Natural Food Trend

Why Foods That Are Blue Are Perceived As Less Natural

Big Brands Clean Up Portfolios for Consumers

Natural Colors Linked to Positive Health Effects

Many Food Companies are Cooking Up New Natural Recipes

European Food Safety Authority (EFSA) Continues Research on the Safety of Titanium Dioxide

A Deep Look into Spirulina: an Emerging and Popular Natural Color Source

Does Mac&Cheese Lead the ‘Free-From’ Trend?

Why Wegmans Removed Artificial Colors in their Icings

Food Companies Are Not Phasing Out Artificial Colors Fast Enough for Some

Heinz Removing Artificial Colors from Pickles

Kraft Launching Jell-O Line Without Artificial Colors

McDonald’s Removing Artificial Colors from Iconic Chicken Nuggets

Natural Colors ‘Upsurge’ in 2016 Market Share

Consumers Are Influenced by the Color of their Food