The 2025 tariff bill is now hitting food manufacturers’ margins. After absorbing the initial impact last year, companies are feeling the full effect on their P&L statements in 2026. Ingredient and input prices move on a lag of roughly 12 to 18 months, placing the real weight of 2025 trade policy between April and October 2026.
The tariff rate has been volatile, spiking from 2.4% in early 2025 to nearly 28% that spring, before settling at 12.1% in July 2026. According to the Yale Budget Lab, it’s expected to ease to around 9.8% by year-end, but this is still significantly higher than the 2024 baseline. The rate’s volatility reflects legal adjustments after the Supreme Court struck down one set of tariffs, with the current rate still far above the initial 2.4%.
Tariffs and Inflation Squeeze Margins
Food manufacturers face a dual challenge: tariffs and general food inflation. The USDA forecasts a 3.2% increase in overall food prices in 2026, with food-at-home prices rising 2.8%. Beef prices are expected to jump 7.5% due to a 75-year low in cattle herds. Eggs are the only category with a price decrease, dropping 30.4% as flocks recover. Source: USDA Economic Research Service, Food Price Outlook (June 2026).
With input costs rising across the board, manufacturers struggle to maintain margins. The challenge is to offset these costs without losing volume, as shoppers are increasingly price-sensitive. General food inflation, as noted by the Yale Budget Lab, further compounds the pressure on manufacturers.
Strategic Pricing and Sourcing
Instead of blanket price increases, they’re using targeted pricing, focusing on categories that can absorb higher prices. In fiscal 2026, Conagra faced a tariff headwind of roughly 3% of cost of goods, primarily on tin plate steel and aluminum, and offset much of it through accelerated cost savings, alternative sourcing, and targeted pricing.
This analytical approach, aided by AI, allows buyers to map exposure across supplier networks and make informed decisions.
AI is also improving forecasting, helping procurement teams buy the right inputs at the right time. The reduction in forecasting error McKinsey attributes to AI-driven supply planning, alongside up to 65% less lost sales and product unavailability, highlights its impact. Conagra is investing $550 million in fiscal 2027 to modernize its supply chain and in-source production, leveraging AI to streamline operations and reduce costs.
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Even mid-market manufacturers can adopt these strategies by focusing on their top three volatile inputs, mapping exposure, and implementing disciplined forecasting. Tracking input costs against benchmarks, such as the FIE Input Cost Index, allows them to anticipate cost movements and take proactive measures. The Hackett Group’s 2026 Procurement Key Issues Study found that 80% of respondents named AI-enabled technology the most transformational force in their function over the next five years.
The key to success lies in anticipating input costs and taking action before they hit the P&L. As the industry handles this challenging environment, those prioritizing strategic pricing, sourcing, and forecasting will be better positioned to maintain margins and compete effectively. Section 03 emphasizes that you can’t out-price volatile inputs but can out-forecast them, while Section 04 highlights that mid-market manufacturers don’t need a Nestlé-sized balance sheet to implement effective strategies.
In a historical context, this situation resembles the 1970s energy crisis, when manufacturers had to adapt to sudden cost increases. However, the current use of AI and data analytics provides a more sophisticated toolkit for managing these challenges, allowing companies to make more informed decisions and respond quickly to market changes.
The USDA forecasts that food prices will continue to rise in 2026, with beef and other categories facing significant increases. Manufacturers must be prepared to handle this environment, using all available tools to maintain margins and competitiveness.
Managing Tariff Exposure and Forecasting
AI plays a critical role in mapping exposure across supplier networks, allowing companies to act proactively.
Mid-Market Manufacturers and Strategic Planning
By mapping exposure, qualifying alternate origins, and implementing disciplined forecasting, they can protect their margins. The goal is to see input costs coming and act before they impact the P&L, ensuring long-term competitiveness and margin protection. As Section 04 notes, mid-market operators can focus on their top three inputs and still capture significant margin benefits without needing to out-analyze larger competitors.
