People have largely reacted negatively to the potential tariffs the U.S. plans to implement on products imported into the country from Canada and Mexico. Effective March 12, a 25 percent import tax will apply to all steel and aluminum entering the U.S. At the moment, it is uncertain what will happen to produce since the implementation of tariffs on imports from Canada and Mexico has been paused until March 4 in exchange for actions on border security, illegal drugs, and immigration.
"We are trying to stay neutral and be pro-active about it," says Guy Milette with Courchesne Larose out of Montreal, QC. "One thing we learned about two weeks ago is that Trump showed us a new game we didn't yet know how to play. Now that a final decision has been paused, we've received additional time to understand the game better and we will be better prepared by March 4."
Opportunities for consumers
"At the end of the day, everybody is trying to take a position, but as a wholesaler we are stuck in the middle and are in a more neutral place. We have to let the consumer decide how they want to respond and while it sounds hard to believe, a tariff could create opportunities for them as well," Milette said. An export product like onions now easily makes its way across the border to the U.S. A tariff may have a downward effect on exports and could potentially result in more local produce being available to Canadians, resulting in lower prices.
In case of a tariff, Canadian growers won't all be affected in the same way. "In Quebec, greenhouse grown produce mainly stays in the domestic market while greenhouse growers in Ontario are very large exporters." All in all, the impact of tariffs would be huge, but retaliatory tariffs would also have a big impact as the U.S. would pay taxes on all produce being exported to Canada.
Guy Milette
Boycotts
One way Canadian consumers could respond is by boycotting U.S. produce. "As a rule of thumb, one-third of consumers will firmly boycott U.S. produce, one-third would like to, but will still continue to purchase USA grown fruits and vegetables, and one-third doesn't care as they simply need the product." The foodservice industry in particular will need to continue to offer certain produce items to their customers and they don't have the luxury of putting boycotts in place. "For customers that refuse to buy USA grown produce for now, it is important to realize that we may not always be able to replace that product," Milette said. "Although Courchesne Larose is an international company and sources from many different regions and countries around the globe, we can't switch sourcing regions overnight." Windows of opportunity to source from other regions and countries have been created by Mother Nature. Going forward, sourcing strategies could potentially be partly driven by tariffs, but time is needed to shift growing regions. Imagine consumers want to switch from California grown citrus to citrus from Spain. "We would need about 10 to 14 days to make the change, partly because we are dependent on ocean transportation.
While a tariff comes with a price tag, the price tag of a different sourcing region could be even higher. "A 25 percent tariff on an oversupplied zucchini market will likely be a lot cheaper than replacing the U.S. with a different growing country. It may be better just to pay the tariff and bring it in."
Implementation
Despite the uncertainty, the Canadian government is working hard on implementing a system that will administer produce imported into Canada and the taxes involved. The Canada Border Services Agency (CBSA) will be responsible for assessing and collecting duties and taxes on commercial goods imported into Canada using the CBSA Assessment and Revenue Management (CARM) system. While Milette is confident the Canadian government will be able to implement a system to assess and collect duties, he is wondering if such a system can take into account changes to quality of produce. Let's say a Canadian buyer and a U.S. seller agreed on selling produce for $30/case. The product would be taxed at 25 percent, which equals $7.50 in taxes. In the event of a quality issue and the product no longer meets the quality specifications and is ultimately settled at $15 return to the seller. "How will the tariff be calculated in this case as the tariff would have been calculated on a value that never materialized," Milette commented. "At Courchesne Larose, we do over 500 custom entries per week, with 150 trucks coming from the U.S. and about 75 of them could potentially be subject to tariffs. The price change would need to be addressed, because it is not sustainable to pay a tariff on a product that later decreases in value." This is the particularity of the fresh produce industry.
"While we prepare for the worst, let's just hope nothing happens on March 4. The dynamics in the produce industry would be a lot less complicated without tariffs, but the consumer would be the biggest loser."
For more information:
Guy Milette
Courchesne Larose
Tel: (+1) 514-525-6381
Guy.milette@clarose.com
www.courchesnelarose.com