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Tariffs increase costs for U.S. canned food producers

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Shift to alternative packaging faces cost and logistical

hurdles

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Recycled aluminum cans mitigate tariff impact for beverage

industry

By Jessica DiNapoli and Emma Rumney

NEW YORK/LONDON, June 24 (Reuters) - Andy Russick, who

sells canned fruit and tomatoes to top U.S. grocers like Kroger ( KR )

, hospitals and schools, shares the stated aim behind U.S.

President Donald Trump's trade war - fighting cheap Chinese

imports.

Yet when U.S. tariffs on imported steel and aluminum doubled to

50% on June 4, his company, canned-food maker Pacific Coast

Producers, became collateral damage in the crossfire of Trump's

erratic trade policies.

The problem is that since 2017, Chinese fruit cocktails,

vegetables and similar canned-food imports from across Southeast

Asia and Europe have been flooding the shelves of U.S.

supermarkets, undercutting the price of comparable products from

the United States.

That trend is now set to accelerate as the cost of the

specialty steel used to preserve food jumps by about 6% for

Lodi, California-based Pacific Coast, due to the latest round of

tariffs on the metal, Russick said.

"We're getting caught up in that brush fire," said Russick,

vice president of sales and marketing at Pacific Coast, a

significant supplier of white label long-life products in the

U.S.

The new duties on steel and aluminum - metals used in the

packaging of food, beverages and personal care products like

shaving cream - are sparking a reckoning for companies, who are

now facing higher costs, forcing them to look at alternatives

like glass, plastic or fiber-based containers.

The makers of alternative packaging, at the same time, see a

new opportunity to gain more business.

Russick expects in the next few years to shift some

packaging to aseptic cartons, like those produced by

Swedish-Swiss Tetra Pak and Swiss-listed SIG Group, or

to sell more tomato sauce in cheaper foil pouches to restaurants

to save on costs.

Coca-Cola CEO James Quincey told investors in

February, when tariffs on aluminum and steel were set to rise to

25%, that the soft-drinks maker could put more emphasis on

plastic if cans became more expensive.

"The trade war is fueling the conversation that we need to

get rid of aluminum in beverage packages," said SIG Group CEO

Samuel Sigrist, whose company offers aluminum-free aseptic

cartons.

Campbell Co - whose soup cans became famous artworks

- said in a statement that it was working to mitigate cost

increases from tariffs and will continue to rely on steel cans

for packaging.

Glass bottle makers are also hoping to win market share from

aluminum cans used for beers due to the tariffs, said Scott

DeFife, head of the U.S. Glass Packaging Institute, which

represents the manufacturers.

"If these tariffs persist, tighter margins will eventually

force a response," said Zak Stambor, an analyst with eMarketer.

"In the longer term, companies may have to rethink their

packaging strategies."

Pacific Coast's Russick is currently looking to pass along

$8 million to $10 million in new costs stemming from tariffs on

the specialty steel used for cans to his customers, a figure the

company projects to jump to $40 million next year.

By next spring, the cost of cans delivered to Pacific Coast

for the upcoming harvest may have a 24% tariff-induced cost

increase, Russick said.

HURDLES

But those possible shifts from aluminum and steel to aseptic

cartons or glass come with logistical and cost hurdles.

Most glass bottles are still costlier than aluminum because

they are heavier to ship.

Aluminum cans also already have a stronghold in some U.S.

beverages: about 64% of beer sold in 2023 was in aluminum cans,

according to the Beer Institute. Such cans are also common in

fast-growing beverage categories: energy drinks like Molson

Coors' ( TAP/A ) Zoa, still-water brands including wildly popular

Liquid Death; and pre-mixed cocktails.

Much of the aluminum used to make those cans is recycled and

not subject to tariffs, said Jack Buffington, director of supply

chain and sustainability at First Key consulting, which advises

the brewing and beverage industries.

The average U.S. beverage can already contains about 71%

recycled content, according to the Aluminum Association. The

figure could climb higher if U.S. consumers practiced recycling

more diligently.

Anheuser-Busch InBev's chief financial officer,

Fernando Tennenbaum, told Reuters in May, before aluminum

tariffs doubled, that the financial impact of levies affecting

cans was "not relevant" for the company.

AB InBev, which sources the vast majority of its cans in the

U.S., had no plans to make changes to its packaging, he said.

The company declined to comment for this story.

Companies like Coke that already use a variety of packaging

may have an easier time responding to aluminum tariffs. By

contrast, brewers that have been closing bottling lines to focus

on cans would have to make hefty investments to retool their

operations, Buffington said.

Plastic already makes up nearly 50% of Coca-Cola's packaging

globally, according to the company's 2023 environmental report,

against 26% for aluminum and steel. Only 8% of rival PepsiCo's ( PEP )

products were packaged in aluminum, in 2023, the company

said.

Coca-Cola and PepsiCo ( PEP ) did not respond to requests for

comment.

Top packaging technology company Krones of

Germany, whose products include glass bottling lines, said so

far it has not seen any significant shift toward glass.

A fast, widespread move to other forms of packaging is

unlikely during heightened uncertainty, with companies hesitant

to make significant financial or strategic decisions based on

policies they think could change, the U.S. Glass Packaging

Institute's DeFife said.

"I think some people are really waiting to see what sticks,

what doesn't stick," he said. "A 30-day thing is not a threat to

your supply chain immediately."