Spice giant McCormick warns tariffs could cost $90M a year

The global spice and flavoring leader, McCormick, has issued a significant warning regarding the financial repercussions of evolving trade policies, estimating that the Trump administration’s tariff measures could impose an additional cost of up to $90 million annually. This substantial financial burden primarily stems from increased prices for essential imported spices, many of which are not commercially viable for cultivation within the United States. The announcement underscores the intricate challenges posed by shifting global trade policy on the delicate balance of supply chains within the vast spice industry, potentially contributing to broader inflation concerns.

In response to these anticipated economic headwinds, McCormick is strategically planning to implement selective price increases during the fourth quarter of the year. According to Executive Vice President and CFO Marcos Gabriel, these adjustments are necessary to offset the “cost of certain commodities coming in higher than we had planned.” Beyond price adjustments, the company is actively leveraging advanced analytics to identify and secure alternative international sourcing locations. This proactive approach is expected to mitigate a significant portion of the tariff burden, showcasing McCormick’s commitment to adapting its operations to the dynamic global economic landscape.

Despite these mitigation efforts, a fundamental challenge remains: the inherent inability to substitute certain raw materials critical to McCormick’s vast product portfolio. CEO Brendan Foley openly acknowledged that some ingredients are “not commercially available in the United States,” making them irreplaceable. With a diverse portfolio comprising approximately 17,000 ingredients sourced from 90 markets, McCormick is dedicated to minimizing its reliance on any single country. This strategy is particularly crucial as rapid and often unpredictable trade negotiations lead to varied duty structures depending on the specific geography, compelling the company to “pull all the levers that we can to mitigate the impact,” as stated by Gabriel.

Adding another layer of complexity is the surging consumer demand for global and exotic flavors, which has become a prominent culinary trend. As more enthusiasts seek to replicate diverse restaurant experiences at home, fueled in part by persistent inflation, the demand for ingredients like yuzu or lychee has grown. However, many of these trendy ingredients are native to specific growing regions outside the U.S., making them directly susceptible to tariffs. Even McCormick’s highly anticipated “Flavor of the Year,” the Aji Amarillo pepper from Peru, falls under this category, currently facing a 10% baseline tariff, directly impacting the cost of introducing new culinary inspirations to American households.

The broader implications of these tariffs extend beyond individual companies, posing a significant challenge to the entire spice industry. Following a 90-day pause, sweeping tariffs were set to go into effect on July 9, impacting countries without established trade agreements. The American Spice Trade Association (ASTA) has vocally warned that this move is expected to raise prices for a wide array of common spices, including table salt, black pepper, vanilla, cinnamon, and nutmeg. In a stark letter to the Trump administration in March, ASTA emphasized that “the vast majority of spices cannot be grown in America in quantities sufficient for commercial use,” predicting that these higher costs would inevitably be passed down to consumers or absorbed by food manufacturers, contributing to inflationary pressures on everyday grocery items.

Despite navigating these significant economic headwinds stemming from trade policy, McCormick demonstrated remarkable resilience in its second-quarter earnings, surpassing analyst expectations. The company reported a commendable 1% increase in sales, driven by higher volumes, indicating robust demand for its products. Furthermore, McCormick is observing accelerated interest from other food companies keen on making their portfolios healthier or reformulating products to remove artificial dyes. This dual success—managing tariff challenges while capitalizing on health-conscious market trends—highlights McCormick’s adaptive business model and strong market position amidst a fluctuating economic and political landscape.