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Canadian Tariffs: Ketchup Iffy, Bourbon and Whiskey Kinda Risky

07/03/2018 By

In what is starting to look like a high stakes game show, Canada hit its trade war button Sunday, imposing 10% tariffs on a wide range of U.S. staples.

Run through your grocery list of most things Kraft Heinz, add in a nice array of other foodstuffs found on adjacent aisles and, well, if events play out as usual, the affected companies will take disproportionate advantage of this latest opportunity to raise prices.

About $12.5 billion in U.S. products took the hit, including a tiny Wisconsin yogurt factory that was targeted, no doubt, because it happens to be in Paul Ryan’s back yard. At any rate, the sticking point between Canada and the U.S. is, of course, centered on NAFTA. However unlikely the disruptions are to well-established cross border supply chains, no one even wants to consider them.

So it goes. While consumers will complain, their brand loyalties indicate that there isn’t any reason for alarm bells to be sounding. Heinz ketchup has proven itself especially resilient. The company has used tomato crop shortages to justify price hikes nearly every year throughout its history, despite the fact that the company is the largest tomato grower on the planet and able to control its own destiny. But hey, now it can blame Trump.

While Heinz ketchup is getting personal, booze takes it to the next level. When we’re talking about our favorite Kentucky bourbons and Tennessee whiskeys, those are not only fighting words for many, but an excuse that will drive all sorts of interesting consumer countermeasures. Although raising alcohol prices has been proven time and again to be an effective strategy for reducing excessive consumption and related problems, this group’s loyalists aren’t interested in hearing any of it.

By most any standard, booze is cheap in America — in many cases about half the price. So not surprisingly, booze restrictions at the Canadian border — once you’ve exceeded your personal exemption — include a combination of duties and taxes that magically reestablishes the government-regulated Canadian price. While Canadians all know the cross-border risks, that doesn’t mean that the latest hikes won’t cause them to enlist a few additional tricks.

My friend’s personal favorite is to take advantage of staffing shortages at busy border checkpoints. Will trade war travelers do the math and stubbornly wait in line at more popular border crossings? History suggests that consumers will be far craftier.

Regardless, Americans should know that our friends from the north can only claim goods worth up to C$800 without paying duty and taxes. In terms of alcohol and tobaccos, they can only bring back up to 1.5 liters of wine or 1.14 liters of alcoholic beverages or up to 8.5 litres of beer. They can bring back a carton of cigarettes, 50 cigars, 200 grams of manufactured tobacco and 200 “tobacco sticks.”

But Canadians do have the opportunity to pool their exemptions (to maximize their limits), which encourages car loads of adult Canadians to travel to the U.S. (seven days or more). Fortunately, the Canadian government doesn’t get too crazy with enforcement. For example, if you happen to “forget” about a few bottles in your luggage, the worst case is that you’ll end up paying the price you would have while stocking someone’s liquor cabinet along with having your passport flagged. Although none of those outcomes is appealing, they beat several alternatives that come to mind.

The U.S. sold about $55 million in whiskey to Canada in 2017. For perspective, total U.S. spirits exports to the E.U. in 2017 were valued at $789 million, with U.S. whiskey accounting for about 85% of that total, or $667 million. Despite those facts, Kentucky Governor Matt Bevin doesn’t seem worried. In fact, he has been roundly criticized for his seeming indifference, saying people who like bourbon are going to continue to drink it, regardless of price.

As difficult as Bevin’s attitude may be to swallow for some, he knows that Canadian snowbirds will be loading up like never before next year, driving seasonal liquor sales spikes that are already being anticipated by Kentucky distillers. Who says you can’t count on anything anymore?