Maryland’s craft breweries are facing a new pressure that's causing quite a bit of uncertainty — tariffs. The Trump administration's recent decision to double tariffs on aluminum imports to 50% has sent ripples through the craft beer industry.
There are truly two sides to the tariff coin when it comes to the impacts on U.S. manufacturers. For Maryland’s strong community of independent breweries, the aluminum tariff in particular presents both challenges and opportunities that breweries should explore.
The Pros
1. Potential Boost to Domestic Aluminum Producers
The primary intent behind the aluminum tariffs is to bolster U.S. manufacturing by encouraging domestic production. For Maryland breweries that prioritize locally sourced materials, this could mean a more reliable supply chain and potentially better quality control. Local suppliers could benefit from reduced competition from cheaper competitors.
2. Environmentally Friendly Production Practices
With the increased cost of new aluminum, breweries may be incentivized to invest in recycling programs and initiatives. This shift not only aligns with environmental sustainability goals but also reduces dependence on imported materials. Maryland breweries could lead the way in their local communities by promoting a circular economy through reusing aluminum cans.
3. Innovative Alternative Packaging Solutions
Innovations like biodegradable cans or lightweight composite materials could emerge. This would be an opportunity to create new branding and marketing ideas as breweries explore interesting ways to differentiate through unique packaging and designs.
4. Scale Efficiency through Supplier Consolidation
Tariffs may encourage consolidation among small breweries by increasing buying power. Collective ordering enhances negotiating strength with suppliers and equipment vendors.
The Cons
Although tariffs on aluminum cans have the potential to promote innovation and domestic production, it is important to ask the question, “At what cost?”
1. Increased Production Costs
Aluminum cans constitute a significant portion of packaging expenses for breweries. With the new tariffs, the cost of these cans has risen substantially. For instance, according to the Wall Street Journal, the Midwest delivery premium for aluminum has surged from 38.5 cents per pound to 63.2 cents per pound, translating to an additional $1,393 per metric ton. These increases directly impact small Maryland breweries that do not have financial buffers.
Tariffs on metals also have the potential to spill over into related materials, such as fertilizers and chemicals, which push up grain prices by 30%. A few extra cents per pound of malt may seem modest, but when consolidated across production volume, it could be a heavy burden for local breweries.
2. Increased Competition From Larger Brewers
While smaller breweries struggle with rising costs, larger national and international brewers might have the resources to absorb these expenses or negotiate better deals with suppliers. This disparity can lead to increased competition, making it more difficult for Maryland's small breweries to maintain market share.
3. Profit Margin Pressures
Small and independent breweries often operate on thin profit margins. The added costs from tariffs may not be easily absorbed, leading to difficult decisions. Some breweries might opt to raise prices, potentially alienating price-sensitive customers. Others might reduce production or even discontinue certain beers to limit the financial strain.
4. Potential Job Losses
Increased production costs could lead to workforce reductions. Maryland's breweries, which are significant employers in the state, may need to cut jobs or reduce working hours, which impacts local economies and communities.
Navigating the Challenges
With a level of uncertainty looming in the air as the manufacturing industry prepares to adopt and respond to changing political and economic conditions, breweries should consider the following strategies for navigating the possible challenges of aluminum tariffs.
- Diversify Packaging Options: Explore alternative packaging materials or formats to help reduce the reliance on aluminum.
- Diversify Product Mix: Some brewers have dipped their toes into distilling and ready-to-drink (RTD) cocktails. Diversifying can buffer against rising packaging costs.
- Strengthening Local Supply Chains: Building and/or expanding relationships with local suppliers can reduce exposure to global market fluctuations.
- Invest In Efficiency: Implementing energy-efficient brewing processes and equipment could potentially offset increased costs.
- Strong Marketing Focus: Investing in community-driven recycling programs could reduce the dependence on imported materials.
Final Thoughts: A Mixed Pour Ahead
The aluminum tariffs are a double-edged sword for Maryland breweries. On one hand, breweries face rising input costs, thinner margins, uncertain supply chains and tough decisions on pricing and growth. But, on the other, there’s potential relief via strengthened domestic supply chains and innovative pivots.
Though this may be a challenging period, Maryland’s craft-beer community is resilient. By embracing strategy, collaboration and innovation, there’s still plenty of opportunity to thrive.
Need Help?
You can read more about tariffs in our article, Tariffs 101 for Manufacturing Business Owners.
Contact us online or call 800.899.4623.
