Tariff threats leading to 'intense uncertainty' for food and drinks sector

More than 50% of surveyed executives anticipates marginal losses from US tariffs, a new report launched by UCC has found

Amid changing demographics, Gen Z is beginning to comprise a larger proportion of consumers with buying power, the report added, making product digital integration increasingly crucial as consumers rely on detailed product information and digital experiences to make purchasing decisions. Niall Carson/PA Wire

The global food and beverage sector faces "intense uncertainty" from tariff threats, weakening consumer sentiment and ongoing cost of living pressures, a new report launched by University College Cork (UCC) warns. 

Published by UCC, AIB, Goodbody, KPMG and A&L Goodbody, the report highlights a series of issues contributing to the sector's instability, including regulatory shifts across the EU and the US, input price volatility, and labour shortages linked to immigration policies. 

Despite these challenges, most Irish food and beverage executives remain optimistic, the report found, with over half expecting growth in their businesses this year by focusing on a defensive strategy, focusing on cost-cutting and doubling down on sales in existing markets, although contractions are expected in the US and China.

Tariffs top the list of risks facing the sector, with over 50% of executives anticipating marginal losses from US tariffs and nearly 40% expecting significant but manageable impacts.

Food inflation and cost pressures also persist, the report noted, driving consumers to prioritise price and quality over origin or sustainability, often buying fewer items and seeking out promotions. As a result, while consumer support for sustainability remains strong, the willingness to pay a premium is limited. 

Interest in alternative proteins is cooling, the report found, while the EU sustainability regulatory momentum is slowing. Despite this, investment in sustainability by food and beverage companies continues, driven by ESG and board-level commitments.

Amid changing demographics, Gen Z is beginning to comprise a larger proportion of consumers with buying power, the report added, making product digital integration increasingly crucial as consumers rely on detailed product information and digital experiences to make purchasing decisions.

Meanwhile, anti-obesity medications are poised to disrupt the sector, potentially cutting US calorie demand by 10% by 2030. 

High-calorie and ultra-processed foods face the greatest threat, with opportunities emerging for new nutrient-dense food products, the report said. Irish executives remain undecided on the medical development, seeing it as neither a significant threat nor an opportunity.

"The global market for weight loss drugs is estimated at $6bn and is estimated to reach $105bn by 2030," the report said. 

"If weight-suppressing medications continue to develop, consumer eating habits and food preferences may be materially impacted, leading to a decrease in the consumption of high-calorie snacks and fast food."

More optimistically, AI is seen as a major opportunity for the food and beverage sector, with over 80% of executives planning investments within the year, while expected returns focus mainly on cost reduction rather than new product development.

“In a landscape marked by volatility and evolving consumer priorities, resilience and strategic agility will be essential for food and beverage companies," said Professor Thia Hennessy of UCC, who led the report.

"While challenges like tariffs and inflation test the sector, innovation in sustainability and AI, with over 80% of executives planning AI investments, offer a path forward. Success will depend on balancing cost efficiency with targeted investment,” Professor Hennessy added.