With the new tariff on imports of steel and aluminum into the U.S. approaching, there is still a lot of uncertainty – but on one point, all horticultural suppliers seem to agree: Food will not get cheaper, and the unrest and insecurity are not beneficial to the horticultural industry.
Without exception
On February 10th, U.S. President Donald Trump signed proclamations to impose 25-percent tariffs on imports of steel and aluminum into the U.S. from all countries without exception, rolling back exemptions for Canada, Mexico, the EU, UK, Japan, South Korea, and other allied nations. Two weeks later, there is still a lot of uncertainty about the rules.
"Businesses on both sides of the Canadian and U.S. border must brace for economic ripples," says Abe Wiebe with Universal Fabricating. For Universal Fabricating, with operations in both Canada (Kingsville, ON) and the U.S. (Sumner, Texas), these tariffs present both challenges and unique opportunities.
Trump says the tariffs function as taxes on imported goods, supposedly designed to shield domestic industries from foreign competition. However, while this might protect some sectors, it can also increase costs for U.S. businesses that rely on imported materials, thereby undermining competitiveness. "Higher import costs drive up expenses for manufacturers that rely on foreign materials, creating inflationary pressures and potentially resulting in retaliatory actions from affected trade partners," says Abe. "For industries that rely on steel and aluminum, such as greenhouse construction, the consequences are immediate. Rising material costs tend to squeeze profit margins, and businesses must either absorb these expenses or pass them on to consumers, potentially dampening demand and slowing economic activity."
"In the case of the horticultural, flower, food, or cannabis markets, if the investment in greenhouses by producing companies increases due to the imposition of tariffs, this could ultimately affect the final cost of products for consumers. This impacts all members of the supply chain, from other construction materials to associated services. The problem is more global than it seems," says Vicente R. Basabe, sales manager in North America for J. Huete Greenhouses. "It is still too early to know how much prices will increase, but they inevitably will."
Time is running out
Although some say the tariffs are a strategy to influence trade negotiations, time is running out, and the tariffs are approaching. The same applies to the tariffs on Canadian and Mexican imports: although these have been postponed until March 6th, this date is also nearing. With Mexico and Canada being the most important food suppliers to the U.S., U.S. food prices seem likely to rise. While this could provide some support for local producers, the additional costs imposed by steel and aluminum tariffs could offset these benefits by making domestic production more expensive. Additionally, many greenhouse supplies are imported from Canada, Mexico, and beyond: some LED lights are produced in Canada, seeds are sourced there, peat is imported, and, of course, glass as well. In short, the cost of growing in the U.S. will not go down. The uncertainty in the market has already led to growers postponing their expansion plans, whether in the U.S., where costs are incalculable, or in Canada, where export opportunities seem uncertain.
Healthy CAPEX
"It's already very difficult to achieve healthy business operations in the U.S.," agrees Barthelemy Richel of the French family business Richel Greenhouses. "The CAPEX is very high, and with these levies, it will go up another 15 percent. That applies to European builders because of the import duty, but also to local parties, who are now priced higher. I don't see how these circumstances can end well. As with all the political and economic measures being taken in the U.S., this will result in inflation."
"Regarding the effects on local growers, I believe that any expansion of their greenhouses will be more expensive if their suppliers are outside the United States," Vicente agrees. "However, any company that imports iron and aluminum will see increased costs, so even when working with local suppliers, costs can rise significantly. This will result in lower profit margins or higher prices for the end consumer."
With Universal Fabricating operating on both sides of the border, with facilities in Sumner, Texas, and Kingsville, Ontario, the ability to pivot between markets and supply chains might present a crucial competitive edge. "As a bi-national company, we can allocate production and materials to serve our customers," Abe says. "We could source materials domestically, bypassing import tariffs that would apply if we shipped from Canada while continuing to leverage our Canadian manufacturing facility for domestic projects." Abe adds, "Operating in the U.S. provides us with insights into local market conditions and consumer preferences, and as trade policies evolve, we can adapt to regulatory changes." However, it remains unclear whether the tariffs will apply only to raw materials or if they will also impact complete food projects. "This depends on specific regulations at the federal or state level in the United States, and it is not yet clear. Good legal advice will be necessary to determine if these types of strategies can be implemented."
For more information:
Abe Wiebe, Director of Sales & Co-Owner
Universal Fabricating
1956 Setterington Drive
Kingsville, Ontario N9Y 2E5
Phone: 519-326-1333 ext.219
Email: abe.wiebe@universal-fab.com
www.universal-fab.com
For more information:
Richel Group
Quartier de la gare
13810 Eygalieres, France
Tel.: +33 (0) 4 90 95 14 68
Email: info@richel.fr
www.richel-group.com
For more information:
J. Huete Greenhouses
info@jhuete.com
www.jhuete.com