Economic Development, Government, and Manufacturing

What do aluminum tariffs mean for breweries?

Local industry leaders are hopeful they can absorb increased production costs.

March 16, 2018
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Beer City’s craft beverage industry may be an unlikely stakeholder in President Donald Trump’s tariff negotiations, and a couple of breweries in Grand Rapids already are preparing for what the recently imposed tariffs will mean for its canned beverage division.

Brad Stevenson, chief production officer at Founders Brewing Co., said about 50 percent of the company’s product is canned, which means Trump’s recently announced tariffs on foreign aluminum would impact the cost of production.

The Washington Post reported Trump announced two weeks ago that his intent is to impose a 10 percent tariff on foreign imports of aluminum.

Stevenson said Founders began feeling the rising cost of aluminum in response to Trump’s rhetoric in 2017.

In fall 2017, Founders entered into a one-year contract with its can distributor, Ball Corporation, to forward-buy aluminum and lock in the cost it would incur.

“We watched (cost) rise about 10 percent before we locked it,” Stevenson said. “Since then, it’s gone up about 5 percent. The impact of the increased pricing that we’ve felt over last year is going to cost us several hundred thousand dollars.”

Stevenson predicted Founders would buy, on average, more than 10 million cans each month in 2018. In a segment that aired on Michigan Radio, he explained more consumers gravitate toward aluminum cans because the portability they allow fits an active lifestyle.

“They like to take our product to places that are fun to be … near waterfronts, a golf course, a concert venue … in all those areas, cans are just easier to transport and more durable than a glass bottle,” he said

Aluminum is not the only precious metal on the table for Founders. The Washington Post said Trump’s tariffs also include a 25 percent tax on foreign steel, which Stevenson said is a critical part of Founders’ operations.

“We spend many millions of dollars annually investing in equipment made of steel … many of those large fermenters,” he said. “There’s a lot of ongoing investment.”

Stevenson said Founders intends to absorb any increased cost of production, claiming the company doesn’t have “the option or the desire” to push heightened costs of canned beverages on the consumer.

As a smaller beverage company, Stevenson said Founders could afford less to put off customers by raising prices on its product than it could to simply cut future losses, but the decision to absorb increased prices will affect how Founders runs its business going forward.

“It’s going to force us to look harder at our capacity,” Stevenson said. “This will put pressure on that, negative pressure.”

Grand Rapids-based Brewery Vivant is another small brewer that doesn’t intend to raise costs for consumers. Owner Jason Spaulding said it has a much higher stake than Founders, with 60 percent of its product canned and a distribution footprint covering only Michigan and Boston.

“At some point in the future, we may have to raise prices if that continues, but we’re trying not to react quickly,” he said.

Spaulding added, like Founders, the increased cost of steel also might affect the company’s capacity for expansion in the future. He said Brewery Vivant prides itself on buying only U.S.-made steel for brewing equipment.

Trump cited national defense as the reason for these tariffs, protecting U.S. metals for the sake of manufacturing military equipment, but Stevenson said he doesn’t follow the logic.

“It doesn’t seem to make all that much sense because we’re citing a national defense policy, and you look at the places providing this aluminum, they’re our allies,” he said.

According to the Washington Post, U.S. allies Mexico and Canada are temporarily exempt, as the Trump administration works to renegotiate the North American Free Trade Agreement (NAFTA). The exemptions are subject to change.

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