A Change of Trade
From shifting trade tariffs to unpredictable geopolitical events and new trade agreements, the terrain can seem daunting.
But the question is - how do these fluctuations impact the food and ingredients industry?
Understanding Trade Tariffs
Trade tariffs, a crucial aspect of international economics, are essentially taxes that governments levy on imported goods. They are the financial gatekeepers that regulate the flow of goods between nations, influencing both the cost and volume of imported commodities.
The Escalation of Trade Tensions
Over recent years, the global trade landscape has been characterised by significant friction, most notably between the U.S. and China. This tension has led to a proliferation of trade tariffs, creating a challenging environment for industries reliant on international trade.
In 2021 alone, the U.S. imposed tariffs on approximately $350 billion worth of Chinese goods, with China retaliating by imposing tariffs on around $100 billion worth of U.S. goods. This tit-for-tat trade war has led to significant distortions in the pricing and availability of goods, particularly affecting the food and ingredients industry.
The Soybean Saga
A particularly illustrative example of the tariff impact is the U.S. soybean trade. As a key export to China, U.S. soybeans were significantly affected when China imposed a 25% retaliatory tariff. According to CNBC, U.S. soybean exports to China fell by 53% in the 2018-2019 marketing year.
The soybean tariff not only disrupted the trade between the U.S. and China but also sent shockwaves through related industries. For example, livestock sectors that rely on soybeans for feed were affected by price changes and supply disruptions, illustrating the broad reach of trade tariffs within and beyond specific industries.
Geopolitical factors play a significant role in shaping the global trade landscape. These factors, which include political decisions, conflicts, and disruptions, can drastically alter trade routes, create logistical challenges, and introduce uncertainties in the market. Understanding these issues is critical for any industry participating in international trade, especially so for the food and ingredients industry, where freshness and timeliness are often vital.
Here are some major geopolitical events and their impact:
The Great British Shake-up
Brexit, the UK's decision to leave the European Union, has had far-reaching implications on trade across Europe and beyond. The imposition of new customs checks and paperwork led to a temporary disruption in food supply chains, affecting everything from fresh produce to fine dining. According to The Guardian, food exports from the UK to the EU dropped by 19% after 15 months of the Brexit transition. This shift continues to reshape the dynamics of the food and ingredients industry in Europe.
A Traffic Jam of Epic Proportions
The Suez Canal, one of the world's busiest trade routes, experienced a historic disruption in March 2021 when the Ever Given container ship became stuck in the canal. The blockade disrupted an estimated $9 billion worth of goods per day, according to Lloyd's List. The food industry was affected by delays in both imports and exports, underscoring the industry's vulnerability to logistical chokepoints in global trade.
Trade Agreements and Their Implications
International trade agreements serve as the rulebooks for global trade, setting out the terms and conditions for commercial exchanges between nations. These agreements are critical to businesses engaged in international trade, offering opportunities and posing challenges in equal measure. Two recent significant agreements – the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the United States-Mexico-Canada Agreement (USMCA) – have presented a new set of dynamics for the food and ingredients industry.
The CPTPP: A Trade Bloc Sans Borders
The CPTPP is a free trade agreement that binds 11 countries across the Asia-Pacific region. This agreement has opened up new avenues for trade, reducing tariffs on a majority of goods and establishing robust regulatory standards. For the food and ingredients industry, the CPTPP has created numerous opportunities.
Redrawing North American Trade
Replacing the former North American Free Trade Agreement (NAFTA), the USMCA has redefined trade rules among the U.S., Mexico, and Canada.
In terms of the food and ingredients industry, potential advantages include:
Enhanced market access, particularly for agricultural products.
Improved regulatory alignment and recognition between member countries, simplifying trade.
Optimising Supply Chain Operations
Tariffs, as we've discussed, can significantly impact the cost and flow of goods. Devising strategies to manage tariff risks involves understanding the trade landscape, exploring alternative supply sources, and considering local production or storage to reduce dependence on imported goods.
Regulatory changes can emerge from policy shifts or geopolitical events like Brexit. To stay ahead, businesses should regularly monitor international trade regulations and assess the potential impacts on their operations. Maintaining open communication lines with trade partners can also aid in navigating these changes.
Embracing Technology: Digital tools can enhance visibility across the supply chain, enabling businesses to monitor and manage operations in real-time. Technologies like AI and blockchain can aid in forecasting, tracking, and securing transactions, respectively.
Diversifying Supply Chains: Having multiple supply sources can provide a buffer against disruptions. It's like not putting all your eggs in one basket, or in this case, not sourcing all your eggs from one farm.
Strategic Stockpiling: Holding reserves of critical ingredients or products can mitigate the impact of short-term disruptions. However, this approach requires careful management to prevent spoilage or unnecessary holding costs.
Navigating the minefield of global trade is no walk in the park, especially in the food and ingredients industry, where everything from tariffs and regulations to geopolitical curveballs can toss your business plans right into the sea.
However, with strategic planning, a bit of diversification, and maybe a dash of digital wizardry, you can navigate these turbulent waters. So, pop open the compass of knowledge, hoist the sail of adaptability, and let's turn those trade lemons into a fine, profitable lemonade. After all, in the grand sea of global trade, the only constant is change – and our unwavering ability to make it work for us.
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