Americans could pay $1.1b more for lunch in a global trade war

A food cart vendor works during the lunch hour in Lower Manhattan, in New York City, on April 12, 2019.
A food cart vendor works during the lunch hour in Lower Manhattan, in New York City, on April 12, 2019.PHOTO: AFP

NEW YORK (BLOOMBERG) - The growing threat of an all-out global trade war means Americans may have to fork out more cash at lunchtime.

Firehouse Subs will likely bump sandwich prices by 10 US cents (14 Singapore cents) because of tariffs on to-go packaging it gets from China.

The cost is amplified by the fact that about 60 per cent of the company's orders are for takeout or delivery, according to Mr Don Fox, chief executive officer of the 1,100-store chain.

"It's a critical item for us," Mr Fox said in an interview. "It might not seem like a lot, but it adds up in a hurry."

Across the industry, tariffs are causing another headache for chains already grappling with higher wages, a dearth of workers and pork prices inflated by an outbreak of African swine fever.

Imminent levies on staple imports like avocados and tomatoes, part of the Trump administration's pledge to punish Mexico for immigration, may add up to US$875 million (S$1.19 billion) for those two products alone, according to an estimate from A.T. Kearney.

This will likely be passed along to consumers in the form of price increases.

 
 

Like Firehouse, Chipotle Mexican Grill uses sugar-cane pulp known as bagasse for its burrito bowls and kids' meals packaging. China is an important supplier of the material, but the tariffs forced the 2,500-store company to diversify its supply chain earlier this year to reduce costs. It is now also getting bagasse from Taiwan and is looking at other Asian nations as well for supplies.

Tomatoes and avocados are a tougher nut to crack, however. Mexico's geographic proximity and longer growing season has made it a key US supplier for these products. Mexican-grown avocados made up 78 per cent of the US market last year, Hass Avocado Board data show.

The US' southern neighbour also exports significant quantities of cucumbers, berries, peppers, coffee, beef and other food.

Chipotle estimates the Mexico tariffs, if enacted, could cost them US$15 million this year. The burrito chain would consider bumping menu prices by "about a nickel (5 cents) on a burrito", according to a statement from chief financial officer Jack Hartung.

Higher prices could also be on the menu at Wendy's and Subway, which get vegetables from Mastronardi Produce, a Canadian greenhouse grower with facilities in Mexico that produce tomatoes, peppers and cucumbers.

"Everyone will end up passing on the tariffs," said Mr Paul Mastronardi, president of the Kingsville, Ontario-based company, which also grows berries indoors.

Tariffs on strawberries and other berries imported from Mexico would add up to about US$493 million, the A.T. Kearney data show.

 
 

When asked about tariffs on Mexican goods, Wendy's said it is monitoring the situation. Subway didn't immediately respond to a request for comment.

Jacksonville, Florida-based Firehouse Subs, which is mostly franchised, gets tomatoes and lettuce from Mexico, depending upon the time of year.

It will be hard to find alternatives and it has no choice but to keep ordering the items, since they are scattered across the menu.

Firehouse also predicts pork prices will climb as much as a 25 per cent later this summer due to the fever that is killing hogs in China, along with jumps in chicken and beef costs, Mr Fox said.

"There's various debate and discussion about who really pays the cost of the tariffs," he said.

"Let's face it, in the end, it's the consumer."