How Canadian Food Manufacturers Are Responding to US Tariffs

As global trade tensions mount, and US tariff policies are causing more uncertainty, Canadian food manufacturers and distributors are facing intensifying challenges. After consulting with senior leaders across the industry, we’ve outlined how operators are navigating cost pressures, supply chain instability, and strategic uncertainty, and what they can do to navigate the situation ahead.

The Growing Impact of US Tariff Policies on Canada’s Food Sector

The Trump administration has radically upended global trade through unpredictable and inconsistent tariff policies. While positioned to correct perceived trade imbalances, these policies impact both allies and rivals alike, and have introduced a new era of uncertainty, disrupting long-standing supplier relationships, altering procurement decisions, and destabilizing cross-border commerce.

Canadian food processors, manufacturers, and distributors still recovering from pandemic-driven disruptions are now facing compounding challenges as tariffs raise input costs and add volatility to sourcing and logistics.

“Tariffs seen as poorly timed and counterproductive – especially after pandemic recovery.” – Foodservice Distributor

Key Challenges Facing Canadian Food Operators

• Heavy reliance on US trade – Canadian food processors, manufacturers, and distributors are heavily reliant on trade with the US across both supply and demand. Many in the sector source critical inputs from the US while also relying on US customers to drive revenue growth.
• Sourcing raw materials from the US – A significant portion of the sector’s raw materials, such as packaging, ingredients, or raw commodities originate from the US. Transitioning to alternative sources in Canada or overseas presents real challenges, including higher costs, supply disruptions, and quality assurance concerns.
• Longstanding supply chain relationships – Supply relationships for many companies in the Canadian food sector have been built over decades and are difficult to unwind.
• Revenue dependency on US markets – On the commercial side, many Canadian operators rely heavily on cross-border sales, making them more vulnerable to unpredictable tariffs, shifting regulatory frameworks, and other barriers that complicate fulfillment and pricing strategies.
• Limited resources to expand – For mid-sized and smaller companies and operations in particular, the options to diversify are often constrained. Limited scale, capital, and procurement leverage can make it impractical to shift suppliers or enter new markets. As a result, these operators are disproportionately exposed to the risks created by a volatile trade environment and may struggle to respond with agility.

Without strategic action, continued overreliance on the US will only magnify the impact of future trade disruptions, making it critical for the industry to consider new approaches for both sourcing and market diversification.

How the Food Sector Is Adapting to Tariff Pressures?

Renegotiating Supplier Contracts

In response to ongoing trade volatility, many Canadian food operators are actively renegotiating contracts with both long-standing and new suppliers. The objective is clear: secure better commercial terms, implement cost-sharing mechanisms, and ensure greater supply chain reliability in an increasingly unpredictable environment.

“We’ve restructured contracts to include flexibility clauses around tariff adjustments.” – Meat Processor

There is now a shift from transactional purchasing to more strategic, risk-aware procurement. Some companies have successfully negotiated volume-based discounts or revised payment terms with suppliers, relying on scale or long-term partnership potential to reduce exposure to tariff-driven price fluctuations.

“We established long-term contracts with strategic suppliers to mitigate volatility, and negotiated volume discounts and better terms with core suppliers.” – Meat Processor

Others are proactively embedding tariff clauses in new agreements to protect against future cost shocks, creating contractual safeguards that provide flexibility if trade conditions deteriorate.

“We need to implement more tariff clauses in new contracts to offset potential tariffs in the future.” – Dairy Manufacturer

However, not all negotiations have yielded results. In cases involving large, entrenched suppliers with significant pricing power, efforts to renegotiate terms have often stalled, leaving some operators with little choice but to absorb higher costs or seek alternative partners.

Diversifying the supply base

Across the sector, the number of supplier contracts being reviewed or revised has grown significantly. Some operators have dropped underperforming suppliers entirely, while others are expanding their networks to include more flexible or regionally diversified partners. Some companies are exploring new sourcing geographies such as Asia, Mexico, and Europe, while others are turning to Canadian suppliers, drawn by more stable pricing and improved lead times.

While promising, new supplier relationships can come with challenges including validating certifications, ensuring quality standards, and managing longer shipping times. At home, even some Canadian suppliers, while more stable, often lack the ability to fulfil required volumes, forcing operators to manage multiple vendors and added complexity.

“Certification and quality validation are challenges, particularly from Asia.” – Dairy Manufacturer

Managing input and transportation costs

Increased input costs, particularly for packaging materials, have prompted many food operators to make targeted adjustments to packaging formats and SKU sizes in an effort to control costs. Rather than undertaking full product overhauls, which could mean extensive testing, regulatory review, and operational changes, certain companies are making smaller, more tactical changes that can be implemented quickly. These include shifting to lighter-weight materials or modifying case pack sizes. Some operators also exploring product development and composition to use ingredients that are not subject to tariffs.

“We have not realized the full impact of input costs yet because we had stockpiled a lot… but packaging is the exception. Packaging material is… almost 50 – 60% of the overall product cost.”  – Meat Processor

At the same time, increased reliance on overseas suppliers and preemptive stockpiling are raising concerns about rising transportation and warehousing costs, which could further erode margins if not carefully managed.

“Everybody’s competing to get product into the US prior to tariffs being applied. We usually hold a safety stock of around eight weeks. We have pushed that out now to about 10 weeks.” – Seafood Processor / Distributor

Adapting Pricing Models to Cost Sensitivity

To manage rising input costs, many food operators have implemented selective price increases. However, customer resistance, particularly in value-driven segments, continues to limit how much of those increases can be passed through. Premium offerings tend to absorb cost increases more easily, while value or private-label SKUs are more vulnerable to customer pushbacks. As a result, operators are seeing a shift in demand away from higher-end products toward lower-priced alternatives, particularly in retail channels. Price sensitivity also remains high among retail buyers and independent food service clients, forcing operators to proceed with caution.

Rather than applying flat price increases across all SKUs, companies are adopting more nuanced pricing models. These include two-tier strategies, SKU-level optimization, and bundling, allowing businesses to protect margins while maintaining customer relationships in competitive categories. To help justify cost increases, many operators are also focusing on perceived value, such as sustainability attributes or packaging improvements, to make price changes more palatable to consumers.

“We adopted a two-tier pricing strategy: absorption on premium, pass-through on commodity SKUs.” – Meat Processor

Current Plans Are Mostly Tactical, Not Strategic

Short-term workarounds dominate the current playbook. Companies are adjusting safety stock levels, consolidating shipments, and rerouting freight to manage delays and reduce landed costs.

“Historically, we have been buying some materials from US which were of Chinese origin, and now we have started directly sourcing from China.” – Beverage Manufacturer

Broadly speaking, what seems to be missing across the sector is a long-term, structured response plan that builds resilience into sourcing, pricing, and commercial strategy.

Six Strategic Moves to Build Long-Term Resilience

These tariff threats should be viewed not as an isolated shock, but as a structural turning point. Canada’s food sector must proactively adapt to reduce long-term exposure to US-centric risk.

1. Diversify Sourcing at a Strategic Level
   Building flexibility and risk redundancy is now a competitive necessity. Operators must proactively develop sourcing networks across domestic and overseas suppliers even if initial costs rise. “We are trying to diversify our major raw material sourcing from the US to emerging economies like India, Taiwan, and in some cases, China.” – Beverage Manufacturer
2. Restructure Cross-Border Operations
   Revisit how entities, transfer pricing models, and trade flows are structured to reduce duty exposure and simplify compliance.“We are working with current suppliers to see if we can bypass tariffs using factories outside of affected countries.” – Dairy Processor
3. Invest in Forecasting & Scenario Planning Tools
   Advanced analytics can enable procurement and commercial teams to simulate tariff scenarios, stress-test cost impacts, and define actionable risk mitigants.“We’re investing in procurement analytics to model tariff scenarios and build mitigation plans.” – Meat Processor
4. Redesign Commercial Models
   Greater pricing sophistication, such as tiered strategies, bundling, and pack-size innovations will be critical to navigating customer expectations while protecting margins.
5. Expand to New Domestic and International Markets
   To reduce overreliance on US revenues, operators must actively grow share in new geographies, both domestically and abroad.
6. Selectively Pursue Vertical Integration
   While not all operators have the scale to bring key inputs in-house, vertical integration of high-risk or high-volume categories may offer cost and quality advantages.“We are exploring in-house capabilities for high-risk or high-volume inputs.” – Meat Processor

Preparing for a New Trade Environment

Tariff disruption is no longer a temporary hurdle; it is a defining feature of the North American trade environment. Companies that fail to evolve will remain exposed. Those that proactively transform their supply chains, pricing models, and market strategies can better withstand market shocks and possibly even thrive through the future.

Need support with strategy or operations?

If you are in the food sector business and are not certain on where to turn, we can help evaluate your current strategy and operations to find ways to manage through the uncertainty. Contact us.