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From tax cut to tax caught: How 2 NJ food industries are feeling effects of tariffs

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Tariffs on aluminum are making cans harder to come by and more expensive for Chris Walsh, owner of River Horse Brewing Co.
Tariffs on aluminum are making cans harder to come by and more expensive for Chris Walsh, owner of River Horse Brewing Co. - ()

When looking at the Trump administration's imposition of tariffs on U.S. trading partners, the focus instantly turns to the manufacturing sectors. But in New Jersey, the effects are being felt in the food and beverage industry as well.

For example, the cranberry harvest in New Jersey makes up only about 5 percent to 8 percent of the world’s production, yet its stability is intrinsically tied to the success of the industry as a whole.

That’s because most international business done by local producers goes through the farmer-owned Ocean Spray Cooperative that accounts for more than half of the world’s cranberry business.

And brewers in the state’s fast-growing craft beverage industry are waiting longer for aluminum cans they’ve already paid more for since the tariffs were announced, which for some is nullifying tax breaks they received last winter.

Canned heat

After countless trips to and from Washington, D.C., to lobby for a lower federal excise tax, local brewers such as Ryan Krill and Gene Muller got what they were fighting for in December. The tax was cut in half, saving each tens of thousands of dollars.

Each projected the extra cash in their businesses, planning for growth and in some cases making real investments, like the nearly $400,000 canning machine Muller purchased from China in January for his Flying Fish Brewing Co. in Somerdale.

“[The tax cut saved us] about $75,000, and that’s what gave us the confidence to invest in that canning line,” Muller said. “We knew in a few years that would help us pay it off. But now, half of that money is going to tariffs.”

According to Jim McGreevy, president and CEO of the Beer Institute, which represents about 5,000 of the more than 6,000 breweries in the country, the recently imposed aluminum tariffs and additional retaliatory tariffs thereafter have had a direct and immediate effect on the cost of business across the industry.

 The tariffs are an additional $347 million cost to brewers across the nation per year, manifested in unusually inflated aluminum costs at a time when canning is increasingly becoming more popular.

The two primary price determinants for the aluminum market are the London Metal Exchange, which is set daily on the open market, and the Midwest Premium, a fee meant to cover a producer’s shipping and handling that is set in private by energy information provider S&P Global Platts, aluminum producers and investors.

“The base price of aluminum we have seen rise about 14 percent since the tariffs have gone into effect, while the Midwest Premium prices have gone up 135 percent since they were announced in January,” McGreevy said.

Of the $347 million hit to the industry estimated by the Beer Institute, Krill, the president of Cape May Brewing Co., and Muller, owner of Flying Fish, each said the cost to them was about $35,000.

“Sixty percent of the beer manufactured in the U.S. comes in aluminum cans and bottles,” said McGreevy. “For the 123 brewers in New Jersey, although you’ve got some brewpubs that don’t distribute, you’ve got [Anheuser Busch] in Newark and some bigger regional craft brewers in the state that distribute. There’s a lot of aluminum cans and bottles coming out of New Jersey with beer in them.”

The additional cost is leaving brewers with few palatable options. Either up your price, something that some brewers like Krill say is not an option given the competitive nature of the business, or cut man-hours.

And while Muller, Krill and River Horse Brewing Co. Owner and General Manager Chris Walsh all said they didn’t plan on cutting jobs, McGreevy estimated the tariffs could lead to up to 20,000 job cuts in an industry that employs 2.2 million nationwide. In New Jersey, where there are about 48,000 industry jobs, that equates to nearly 440 potential layoffs.

As craft beer canning has skyrocketed from 10 percent four years ago to a projected 40 percent this year, “We just saw the growth trend and with the tax cut we had an opportunity to reinvest and help create jobs,” Muller said. “And then we get our legs cut out from under us. The canning is rocketing off, and these tariffs come in and kind of clobber the whole thing.”

Brewers of all sizes are talking about price. A representative from Anheuser-Busch’s Newark outfit told NJBIZ via email: “A tariff on aluminum is a tax that threatens jobs in the beer industry and has the potential to raise the cost of brewing in the U.S. Furthermore, the tariffs highlight an ongoing problem with the pricing of aluminum, which has become disconnected from market fundamentals.”

Nearly all cranberries grown in New Jersey hit the international market through the Ocean Spray Cooperative, comprised of 700 farms.
Nearly all cranberries grown in New Jersey hit the international market through the Ocean Spray Cooperative, comprised of 700 farms. - ()

The issue for brewers isn’t just price of aluminum. It’s availability.

River Horse’s Walsh said he too invested in a canning line this spring, a cost to his company of about $150,000. Everything was great, he said, until the last few orders he made to his can supplier.

“Our primary supplier threw their hands up and said they didn’t have any available,” he said. “When this tariff started, my understanding is the big users of aluminum cans took a bunch of cans out of the market to ensure their supply, so they’re just not trickling down to someone like me.”

Walsh found another supplier, sourcing cans at a higher cost, but seemed unsure about how long they would remain available. Based on recent history, he may not get his next shipment until sometime in January. Some brewers, he said, are waiting 14 to 22 weeks for cans.

“If we pinch a little on margin that’s one thing but if we can’t produce the next order, that has a massive impact,” Walsh said. “We just need to be able to get our hands on them and know where to get them on a consistent basis. It’s hard to plan when you’re not sure if the cans are going to come in. It makes us very sad.”

Muller also cited timing as an issue. Flying Fish snapped up a bunch of cans before the tariffs were announced, and although he hasn’t felt the squeeze like Walsh, he said it’s just a matter of time.

He, too, is stuck with a massive wait for cans. His current order isn’t expected until December.

“That’s if everything goes smoothly,” Muller said. “People don’t always meet their deadlines. It makes it difficult for smaller brewers to plan. Some of the really small brewers who buy on the spot market might just be told ‘there aren’t any cans, come back in three weeks, we’ll see what we can do.’”

What surprised Walsh most is how quickly the dominos fell before he was affected.

“You don’t really think of these macro global economic issues having such a direct effect so quickly, but they do,” he lamented.

Rotten news for cranberry producers

The cranberry industry produces 5 million pounds of product annually, according to Terry Humfeld, president of the nonprofit growers organization The Cranberry Institute.

Between the EU’s 25 percent tariff on cranberry concentrate, Mexico’s 20 percent tariff on dried cranberries, China’s 40 percent tariff on dried cranberries and Canada’s 10 percent tariff on cranberry juice drinks, The Cranberry Institute estimates $50 million in tariffs across an industry that took in $340 million in exports last year.

Kellyanne Dignan, Ocean Spray
Kellyanne Dignan, Ocean Spray
“Over time we can’t effectively do the business in these foreign markets. It will obviously hit the growers’ bottom line.”

- Kellyanne Dignan, Ocean Spray

New Jersey could feel up to $2.5 million of that directly, Humfeld said. While the state’s portion of the industry is relatively small, nearly all the New Jersey cranberries that end up on the international market are from farms that are part of the 700-farm Ocean Spray Cooperative, which accounts for 65 percent of the world’s cranberry market.

Twenty of Ocean Spray’s farms are in New Jersey, and through the co-op, its cranberries are exported to 104 countries. The tariffs they face from the EU, Mexico, China and Canada, markets the farmers themselves have worked hard to break into.

“When you go to China, there wasn’t a word for cranberries because they only grow here. The farmers made huge investments to build awareness for the fruit and to market it,” said Kellyanne Dignan, director of corporate global affairs at Ocean Spray. “Over time we can’t effectively do the business in these foreign markets. It will obviously hit the growers’ bottom line.”

Even if none of the cranberries entering China were from New Jersey, the state’s producers would still feel the effects of the tariffs due to how co-op model was set up.

“Because they all share profits, it trickles down. The cooperative nature is that all growers are vital to the success of business,” Dignan said.

Since the cranberry business is almost entirely made up of shelf-stable dried cranberries and cranberry juice drinks, Dignan said that it’s too early to tell what the effects on the business will be.

“The products on the shelf in those countries are already there. It’ll take a while to feel it, and maybe we never will,” she said. “But the investment in the international business was made by the growers in the first place. The growers in New Jersey, they deliver their fruit to the co-op, but they’re also the owners of the business. They invest in this business to go out and grow their market for them.”

Meanwhile, Humfeld said the industry has been eyeing other markets for expansion.

“The difficulty is the markets that we’re dealing with [tariffs from] are some of our most important. It’s a bit of an uphill climb,” he said.

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Gabrielle Saulsbery

Gabrielle Saulsbery

Albany, N.Y. native Gabrielle Saulsbery is a staff writer for NJBIZ and the newest thing in New Jersey. You can contact her at gsaulsbery@njbiz.com.

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