The U.S. market was somewhat prepared for President Donald Trump to enact tariffs during his presidency, as promised during his campaign. But it wasn’t prepared for how “aggressive” those tariffs would be, including the speed and extent of their implementation, Rabobank global strategist, beverages, Stephen Rannekleiv said Thursday during a webinar hosted by the Brewers Association (BA).
Rannekleiv was joined by BA president and CEO Bart Watson and Craft ‘Ohana president and COO Scott Metzger, in a conversation moderated by GHJ managing director Kevin Michaelan. The panel detailed the short- and long-term impacts of tariffs on the bev-alc industry.
Metzger emphasized: “We’re talking about this as though any of us have really had time to do anything. This is only a few weeks old. So [there’s] still a lot to be seen.”
Here are highlights from the conversation:
Aluminum Prices Rising; BA Prioritizing Barley
Included in Trump’s various tariff moves is 25% aluminum tariffs, which are increasing aluminum prices, and in-turn increasing can prices for breweries, Watson said.
Trump also implemented Section 232 aluminum tariffs in his first presidency, but those tariffs had exemptions “large enough to drive most of the industry through,” Watson said. Now, “they are tariffing the value of the aluminum can, if the product has come in an aluminum can,” affecting beer, particularly imported beer.
The BA is actively communicating with leadership in Washington, D.C., to advocate for craft breweries, but Watson acknowledged that “there isn’t a huge appetite, particularly on the House side, to act from Congress,” compared to conversations the BA has had with members in the past, with legislators viewing tariffs as “the President’s prerogative” and allowing Trump to run economic and statecraft policy “as he sees fit.” The attitude has forced the BA to pivot from its usual practices and communicate more directly with the Trump administration.
In its conversations, the BA is emphasizing the differentiation between “products that are chosen not be onshore, and products that can’t be onshore.”
“And in all of that too, we’re trying to weave in the story of beer, of [how] it’s an American manufacturing success story,” Watson said. “We’ve got manufacturers in every congressional district around the country creating jobs and it’s a product that Americans love that, if they see go up in price, is going to have a psychological effect that probably goes up beyond if your toilet paper goes up a little bit.”
The BA is also focused on goods that are “most important” to the craft brewing industry, including barley and aluminum.
About 40% of the barley used by craft brewers comes from Canada, and that’s “unlikely to change,” Watson said. Barley is not affected by tariffs right now, as 25% tariffs on most goods from Mexico and Canada have been paused due to the United States-Mexico-Canada Agreement (USMCA). However, the BA is advocating to keep barley exemptions as it’s “one of the most critical supply chain imports for our members,” Watson said.
Metzger added that “some of our barley suppliers are going to hold pricing for now, and they are absorbing the tariffs.”
“But if this becomes a long-term trend, eventually that will slip and contracts will come up for renewal, those price increases will start to flow through and we’ll just have to deal with those head on,” he added.
Aluminum tariffs on the other hand are more “sticky,” according to Watson, and the BA is “moderating expectations” for any relief for the import.
“Now is a great time to be having proactive conversations with your suppliers, if you have that kind of direct relationship,” Metzger advised breweries. “I would not wait until things escalate and are a lot worse to have these conversations with their suppliers. I would now start addressing potentially looking at forward contracting, understanding that forward contracting of itself is a little bit of a gamble.
“There’s an implicit understanding that your suppliers have access to all the same information, if not more, than you do,” He added. “So they’ve already priced in the potential impacts of these tariffs to their forward models as well, and their pricing in the future is going to be reflective of their expectations, so certainly you’re not going to catch anyone off guard and lock in yesterday’s price for a year from now.”
Most Immediate Effects Are on Workforce Morale and Consumer Sentiment
This year’s rollercoaster of economic moves doesn’t just have an effect on supply and pricing, Metzger said.
“The more immediate impact we may feel as operators is how is it affecting our workforce,” he said. “How are our team members feeling in terms of sentiment, and how is that impacting them?
“That’s going to be kind of the canary in the coal mine … we’re going to start seeing the first immediate effects of folks feeling the pressure at home, and that translating into work and just their general vibe overall,” he continued.
Consumer sentiment and buying habits are also going to be significantly impacted, according to the panelists.
Rannekleiv emphasized that “President Trump has been very clear that they’re willing to take some short-term economic pain” in an effort to secure “national interest long-term,” suggesting Trump’s recent moves are more about foreign policy than economic policy.
Beer has been touted as price-ineslatic, with consumers continuing to make purchases even during economic pressures. However, there is a limit, Rannekleiv said.
“It makes me a little bit nuts when I hear economists, macroeconomists, talk about how resilient the consumer has been and how excited they are,” he said. “That sounds great, but where have you been, right? The consumer sentiment is a dumpster fire right now and the biggest thing on voters’ minds in the last election was inflation, and the piece that economists often miss is just the cumulative impact of inflation.
“The discretionary income of consumers has come under a lot of pressure right now,” he continued. “Now, it’s forcing consumers to make very difficult decisions, and so it’s changing a lot of the assumptions that we had about consumer behavior in the past.”
What makes today’s economic environment unique to historical trends, where beer has been “recession resistant,” is that “the potential inflation we might get from a tariff regime and typical inflation,” Watson said.
“A normal inflation is going to both raise wages and raise the cost of goods,” Watson said. “This is going to be a one-time shock to prices that, in the short term, is not going to translate into wages. It is just going to be a reduction in purchasing power for consumers.
“So as companies are thinking about their strategy, thinking about it in those chunks of short-term and potential long-term is key, because the benefits that come are going to be medium- to long-term, and the costs are going to be upfront to consumer purchasing and seeing inflation that doesn’t translate into wages,” he continued.
Metzger added that the “one-time hit” price increases “tend to be very sticky.”
“If you go through a period of multiple cycles of 5-10% inflation, and then it comes back down to 1%, that’s still all growing, and that cumulative effect never, never goes backwards,” he said.
“We’re in a brand new world, the price elasticity of beer has really been untested in this kind of environment,” Metzger added. “There are alternatives to beer and craft beer that didn’t exist before. And it’s going to be really important for brewers to think about that, as they consider the potential of passing on the impact of tariffs on their business, onto their consumers and their customers. There may be more resistance to that, that didn’t exist before.”
Beer at an Advantage?
One positive takeaway for beer is that its wine and spirits competitors may be more harshly impacted by recent economic changes, as imports are a “much bigger component” for both wine and spirits, Rannekleiv said.
Metzger added that there is “a potential for a reshuffling of the competitive landscape” across beer, wine and spirits, as historical consumer trends have gone “out the window,” and there is now “a completely new set of dynamic variables.”
“Consumer preference is not just all about product characteristics, it’s also driven by economic factors,” Metzger said. “And those economic factors are completely being changed.”
Changes to historical consumer trends could both hinder and help beer, and will vary by segment, Metzger acknowledged. Mexican imports, which “have been eating all of our lunches for years” by recording consistent growth within beer over the past few years, are now under pressure. Similarly, one of the most popular craft beer styles, hazy IPAs, “rely upon exotic hops,” and will certainly be impacted by supply price increases.
Meanwhile, hard cider, which is “reliant upon domestic agricultural production of apples,” could have a “very pronounced competitive advantage in the marketplace.”
“How is your business prepared to take advantage of [those changes],” Metzger said. “Are you still stuck in the mindset that, ‘Hey, we are a craft brewery that is solely focused on making IPAs,’ or are you looking to diversify your business to reach other potential competitive markets?”
Watson agreed, but warned brewers to make decisions based on their individual consumer bases, “understanding where you sit in the marketplace,” and “how you can strengthen your place relative to your market and your consumer,” as “downward pricing pressure isn’t necessarily guaranteed if you’re in the right place.”
“We’re going to see parts of the U.S. that this is good for, we’re going to see parts of the U.S. this is really, really bad for, and so understanding where your brewery is located on that spectrum, and what your customers are feeling, is one of the keys,” he said.