The combined direct and indirect costs of US import tariffs could cost Australian food and beverage manufacturers more than $765 million, finds early modelling conducted by Fair Supply. This is a disproportionally high impact when compared to other Australian business sectors affected by the tariffs.
According to Arne Geschke, Fair Supply’s Co-Founder and Chief Technology Officer, the results of the modelling shine a light on the true danger of tariffs, being the ripple-on effect through international supply chains.
“Tariffs will be embedded in the DNA of global supply chains. Without visibility into those connections, companies are flying blind,” she said. “While the focus has often been on tariffs applied at point-of-entry, the real damage is further downstream.”
In other words, when secondary and tertiary suppliers are hit with tariffs, the resulting cost increases trickle down the supply chain, inflating costs, distorting pricing, and eroding global competitiveness.
“These indirect costs are frequently invisible to traditional monitoring and are often passed onto Australian businesses with little control over their full supplier ecosystem,” Geschke says.
A first of its kind globally, the Fair Supply supply chain tariff calculator maps the combined direct and indirect costs of new and reciprocal tariffs on over 60 billion global supply chains, estimating increases to production costs. According to the free version of the calculator, tariffs are expected to increase wine production costs in Australia by 0.62 per cent and beer production costs by 0.69 per cent, with packaging listed as one of the most at-risk elements.
In a statement provided to media, Fair Supply said the rise “is anticipated to reduce already thin net profit margins, placing significant financial pressure on producers,” adding that, “as the cost of goods sold (COGS) increases, we can expect a significant rise in retail prices.”
The estimated $765 million cost to Australia’s food and beverage sector forms part of a larger $15 billion overall cost to the Australian economy as shown through Fair Supply’s modelling.
Innes Willox, Chief Executive of the Australian Industry Group, says the tariffs are “particularly bad news for our nation, because we rely on trade for our economic prosperity more than any other economy on earth, with one in four jobs dependent on trade.”
Building on this, CPA Australia’s Business Investment and International Lead Gavan Ord says that, “for many businesses, the changing economic environment is providing an impetus to diversify,” a view reflected by Australian Vintage’s Head of ESG Penelope Goodsall in this Drinks Trade article published yesterday.
“Australian wine probably needs a little bit of a shake up,” she said. “This [tariff situation] gets us as collectively as an industry to certainly look at how we’re doing business and what we’re focussing on and really shifting away from that emphasis around traditional full-body reds.”
In the linked article, Penelope Goodsall along with Taylors Wines’ Managing Director Mitchell Taylor explain the full implications of Trump’s tariffs on Australian wine, taking into account all key wine export markets and the implications of differing tariffs on direct competitors such as European wine exporters.
“The main thing I’d say with everything that’s happened – and not specifically the 10 per cent – is just the overwhelming amount of uncertainty that it creates everywhere,” Mitchell Taylor told Drinks Trade. “Those conditions do make it very hard to sell Australian wine in not only the US, but also a lot of our other markets.”
CPA Australia suggests nine key strategies for businesses impacted by US trade tariffs:
Assess your exposureConduct a financial health checkMaintain profit margins by passing on tariff costs and/or reducing your costs and improving efficienciesDiversify your markets and suppliersAdjust your productStrengthen cash flowMarket your unique selling propositionSeek professional adviceLook for new opportunities
“Any shock to global trade conditions presents a wide range of consequences and challenges for businesses to overcome,” Gavan Ord said. “During periods of instability and uncertainty, planning, flexibility and professional guidance become essential.”
Innes Willox adds that the emerging impacts of Trump’s tariffs “reinforces the need to get our policy house in order on issues like tax, deregulation and energy.
“We cannot hope to thrive in a trade war with policy settings that are internationally uncompetitive, overly-complicated and not fit for purpose,” he said.
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This is what Trump’s tariffs mean for Australia’s wine industry… probably