An Airplane Fight Could Lead to Higher Prices for Foods on U.S. Supermarket Shelves

September 03, 2019

An Airplane Fight Could Lead to Higher Prices for Foods on U.S. Supermarket Shelves

Over 400 imported products from the EU including foods like cheeses, olives, coffees, fruits, pastas pork, wines, liquors, jams, seafood and fish, olive oil and yogurt is being considered by The U.S. Trade Representative for tariffs up to 100% to resolve a dispute over aircraft subsidies.

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Hardly an hour goes by without news reports discussing how the trade war with China will affect the stock market, soybean farmers or retail prices. Just recently, President Trump announced he would retaliate to a French proposal to levy a tax at big U.S. tech companies with steep tariffs on French wine.

Surprisingly, no one is talking about or reporting on a decade plus dispute between the United States and the European Union that, according to the Federal Register (Volume 84, No. 71) certain member States have breached their World Trade Organization (WTO) obligations by providing subsidies on the manufacture of large civil aircraft and by failing to withdraw the subsidies or remove their adverse effect. It is basically a fight between U.S. aircraft manufacturers including Boeing and Airbus, whose main civil aeroplane business is based in France with production and manufacturing facilities in France, Germany, Spain, the UK, China and the US.

So why is an aircraft subsidy dispute, alleged to be close to $20 billion, such a big deal that could have dramatic implications for consumers and the U.S. food industry?

On April 12, 2019 the Office of the United States Trade Representative published a list of 317 products (food and non-foods) that had a value of $21 billion in terms of the estimated import trade value in 2018 from the 28 member States of the EU. The list was then amended on July 5, 2019 and 89 additional product categories were then added to the list that had another $4 billion in import trade value.

The list of over 400 products includes foods like cheeses, olives, coffees, fruits, pastas, pork, wines, liquors, jams, seafood and fish, olive oil and yogurt to name just a few. Staples that most of us have in our kitchens and enjoy on a regular basis.

Why is this an important issue? The U.S. Trade Representative is considering adding import duties to these and other products of up to 100%. So as an example, Pecorino Romano cheese, one of my favorites, that now sells for approximately $14 a pound would now cost me $28 a pound; and probably make me rethink just how much I want that cheese. Italy in fact is the number one exporter of cheese to the U.S. from the European Union. But the implications go much farther than how much we would be paying for products.

It is the imported food supply chain that would be the most disruptive: to the factories that produce the products in the EU, the shipping companies, the importers, the distributors, the grocery retailers and restaurants and to the consumer. They will all be affected by lost revenue, lost jobs and a loss of products that simply will find a way to other consumers in other countries.

I spoke with Phil Marfuggi, CEO of The Ambriola Company, a leading importer of Italian cheeses, who serves as the President of the Cheese Importers Association of America who told me there could be up to 20,000 jobs here in the U.S. that could be affected if these tariffs are imposed. Marfuggi went on to explain that many of the imported foods are not the kind of foods that can be replaced by domestic production. Certain foods, by law, can only be produced in certain regions – like Champagne and my beloved Pecorino Romano. He also said that 90-95% of cheeses imported from the EU are on the list.

Marfuggi also told me that he is ordering a lot more non-perishable products than he should be, to be prepared if these tariffs are initiated that are being threatened by both sides and could take effect as early as September. He goes on to say that by WTO regulations the U.S. does have the right to punish Europe by not adhering to the regulations, but he doesn’t understand why this dispute between two aerospace companies is involving cheese.

The value of the EU imported cheese business is $1 billion dollars and already has high tariffs to the tune of around $134 million, which the importers pay already to the U.S. – they are now between 8.5 to 15 percent. If in fact the tariffs do increase to 100% that means the importers would have to pay a billion dollars; but he estimates that wouldn’t happen as the majority of these foods simply would not find it way to the U.S.; as a result that $134 million that goes to the U.S. now would probably drop to around $25 million. Today, according to a survey done by the Cheese Importers Association of America, over 20,000 U.S. supermarkets sell imported cheeses. Marfuggi is concerned and says he can’t import cheese at double the cost, as the consumers won’t pay those higher prices, and it just won’t sell.

Tom Gellert, a principal in the Gellert Global Group, which owns Atalanta Corporation, one of the United States largest importer of foods from dozens of countries around the world was founded by his grandfather in 1945 and is still family owned with over 600 employees across the United States. The company scours the globe for innovated foods that are not found in the U.S. to supply grocery stores, restaurants, cruise lines, and manufacturers. Needless to say, he is quite concerned about the threat of these tariffs and the impact on their business. He calls it a ‘food tax’ that will be pushed on the consumer - he says his organization will not be able to bear the additional costs and those will be passed on to their customers and then on to the consumer and will make them unmarketable.

Gellert is at a standstill. They have just invested $12 million in upgrading one of their cheese facilities, and they want to invest more to increase efficiency and develop new products but he is uncertain about the future and certainly feels he can’t make decisions about his strategic plan for 2020. This aerospace battle has, in his words, paralyzed his and many other companies, and they will be in this position until this is resolved.

He is concerned that the industry is not getting a lot of information back from The U.S. Trade Representative as to what is happening. The lack of certainty, he says, is simply not good for business: not for his customers or his employees - 90 percent of his business relies on imports. Gellert has spent years vetting his suppliers and working with them to adhere and comply to the U.S Food Safety Modernization act to insure what they import lives up to the U.S standards. Even if he could find new sources of supply, it could take years for these factories to meet the requirements and be very disruptive to his business.

Consumers are demanding a variety of foods he says, and for example, a majority of the olive oils that Americans covet and consume is imported, and while California olive oils are available, Gellert says they represent only about five percent of the production we need to fill consumer demand.

What can be done? Tom Gellert says it's time for the food industry including trade associations, restaurants and retailers to call, write and visit Senators and Congressmen and explain their concerns and how these tariffs and attack on food would have a disastrous effect on their businesses. It’s time he says to stand up and have their voices heard and stop these tariffs from destroying vibrant, innovative and growing businesses.

The WTO should focus on fixing the inequities in the aerospace dispute and not punish other industries that are totally unrelated.

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