Dealing With The Reality Of Tariffs
One of the biggest concerns expressed to me by participants in the cheese industry is the uncertainty surrounding the recent tariffs placed on imported European cheeses by our government, and the ultimate impact it may have on the cheese business in the coming year. As frustrating and expensive as it sounds, if you stop for a moment to consider the math, it may not spell doomsday for cheese producers who have worked hard for many years to develop a market for their product in the USA.
Recently, I had the chance to visit Monti Trentini in Italy to experience the creation of their fantastic cheeses (more to come about this in an upcoming issue). Federica Finco and I spent some time discussing the tariff issue during my stay, and I fully expected her to have harsh words for our government and express discontent regarding the future of exporting their cheeses to our country. Instead, she was confident that the Monti Trentini cheeses would continue to grow their share in our market. She pointed out that when she first learned of the possibility of the tariffs being introduced, she carried out some analysis that supported her positive outlook, which I thought I would share with others in the business faced with similar circumstances.
If a cheese costs $7.99 per pound at retailer and is sold in packaged pieces of 7 oz., before the duties it should retail for approximately $3.49 per piece. After the duties, if the full cost of the tariff was passed on to the consumer, the same piece of cheese will now retail for $3.98, which is not likely to be noticed by many. If you follow the same analysis for a cheese that is $11.99 per pound the price before is $5.24 and after will be $5.97, which is still only a slight change.
The starting price of the cheese per pound is going to change the equation naturally, but you could probably assume that anyone buying cheese that costs $30 a pound at retailer is probably not that price sensitive to begin with, especially when it comes to our precious European cheeses. The portion size of the cheese will also have an impact, perhaps pointing to the necessity to keep the package sizes reasonable. Since we are also dealing with specialty DOP cheeses that can’t be replicated in other parts of the world, the possibility of someone substituting away from the product in economic terminology to a different product is probably not that likely.
I hope that the specialty cheese business will continue to grow as it has over the last several years, and we continue approaching the business with a positive outlook. I hope that cheese retailers are sensitive to the needs of cheese suppliers faced with the new economics, and work with them to adjust retailer prices, and not simply expect someone else in the supply chain to absorb these new costs in the New Year.