Spotlight on Toronto & Ontario, Part 2: Wholesalers and retailers

Just like with their grower-shipper counterparts, tariffs are a hot topic for wholesalers and distributors in Toronto as the consequences, direct and indirect, continue to have an impact.  

Even with most fruits and vegetables flowing from Canada to the United States currently exempt from U.S. tariffs, some produce categories coming into Canada face counter-tariffs, such as tomatoes, citrus, melons, and tree fruit.

As most would say, it’s complicated.

Impact on Pricing

The impact of tariffs is clear in some instances, but not so much in others.  

“Tariffs might add $25 to the cost of California navel oranges at $100 FOB (free-on-board), which is a big deal, but if beans are $6 FOB you won’t notice them,” explains Dom Amodeo, Jr., president of Dom Amodeo Produce Ltd. BB #:170517, located at the Ontario Food Terminal (OFT) in Toronto.

As a result, he notes, customers are switching: like from California oranges to Spanish navel oranges or from Florida green beans to Mexican sourcing, at a cost that isn’t noticeable at retail.

It’s a different story for one summertime favorite, watermelon. Tariffs can add $50 to $70 per bin to the wholesale price for melons.

J.E. Russell Produce Limited BB #:115731, also located at the OFT, has been steadily moving watermelon as temperatures rise and barbecue season takes hold, says Hutch Morton, the company’s senior vice president.

“However, these are one of the items Canada has 25-percent tariffs on from the United States, which is driving up prices and squeezing the margins for everyone.”

Dampened Demand

The Trump administration’s talk of making Canada the 51st U.S. state wasn’t funny to most Canadians, leading to curtailed demand for U.S. products in general, tariffed or not.

“There’s a significant decline in consumer demand for U.S. produce in the greater Toronto area,” observes Joanna Ji, executive assistant at Golden Mushroom BB #:344388 in Mississauga. She says this is true even for items with no substitute, like cherries.

The trend has also been evident at the OFT.

“Buyers hear feedback from their customers,” says Amodeo. “They look at the raspberries and if they’re from Mexico or Canada they’ll buy them, but if they’re from California they won’t.”

“Buyers hear feedback from their customers—they look at the raspberries and if they’re from Mexico or Canada they’ll buy them, but if they’re from California they won’t.”

As a result, suppliers have responded with ramped up local offerings.

Examples include J.E. Russell’s 4-ounce clamshells of Haven Greens baby spring and greens mixes from local greenhouse grower Kinghaven Farms, and RPE Canada’s premium Honey Gold and Ruby Sensation potatoes under the O Canada brand.

“The ‘Buy Canada’ movement is real, and the anti-American movement is real,” comments Sylvain Charlebois, professor and director of the Agri-Food Analytics Lab at Dalhousie University in Halifax, NS.

And although Charlebois says there has been an increase in sales of Canadian-produced foods across the board and a decrease in U.S. products, “It’s not as significant as people thought,” he says.

Nevertheless, brands are capitalizing on the anti-American sentiment. “It feels like Canada Day every day, with flags everywhere,” quips Amodeo.    

Stephen Hillion, business development manager at RPE Canada BB #:105471, based in Florenceville-Bristol, NB, agrees.

“Retailers are leaning into ‘made/grown in Canada’ claims, and effective merchandising can help bring that story to life at shelf,” Hillion notes.

Industry analyst Carol Spieckerman, president of Spieckerman Retail in Bentonville, AR, sees the fallout from political maneuvering as more far-ranging for retailers as well as suppliers.  

“The cycle of levies, reductions, postponements, and category shifts shows no sign of shutting down. There’s no way of predicting who or what will be impacted at any given time, and not all consequences result from direct tariffs.”

She says the big retailers like Empire, Loblaw, Walmart, and Metro are better positioned to meet the challenges than Ontario independents. “Highly diversified retailers with agile sourcing capabilities will have more room to move than many small- to mid-sized retailers.”

Supply Chain Challenges

Even with most fruit and vegetable tariffs not in effect, challenges ensue.  

“The deeply interconnected nature of the North American produce supply chain has become even more evident in recent months,” observes Hillion.  

Golden Mushroom’s Ji concurs. “The cost for trans-Pacific shipping has almost tripled from the recent spike in demand, due to the 90-day tariff pause. Shipping costs may not go down in the future as ports and storage in Canada may be used to circumvent the port fees from the United States.”

“One impact of tariffs, maybe not evident to some, is with the 10-percent baseline tariffs the United States has put on most countries, that amount is generally just passed along to us on product coming from U.S. companies who have already paid the tariffs,” explains Morton.

“An example would be Costa Rican pineapples,” continues Morton. “With bonded warehouses and bonded trucks, it’s feasible to avoid the tariffs, but this shows the level of complexity introduced into a system where free trade previously worked great for all in the supply chain, from farm to fork.”

“The generally high cost of produce in combination with the tariffs, due to the relatively weak Canadian dollar, has caused clients to be very careful with managing inventory,” weighs in Jason Furman, COO at Sunbelt Logistics Group BB #:135767 in Mississauga, ON.  

“They’re buying precisely what they need and we’re seeing volumes of produce freight falling in aggregate,” he says, mentioning imports of tariffed U.S. watermelon and peaches. “There isn’t the typical frenzy of buying this year as there has been in past years.”

Problematic Prices

Beyond tariffs, inflation remains an ongoing issue in Ontario and across Canada.

“Consumers are being careful about their spending in Canada, more so now than in past years,” confirms Furman. “The economy is sluggish and there are relatively high levels of consumer debt—which has made consumers more conscious of their spending habits.”

“Produce remains a key traffic driver, but the category is feeling pressure from cost sensitivity and shrink,” agrees Hillion. “RPE Canada has been working with retailers to offer discounts to attract cost-conscious shoppers and to diversify supply locations and product assortment as needed to keep prices as low as possible.”

Ji has seen altered shopping habits too. “There’s a decrease in demand for value-added goods, especially premium fruits, but an increase in demand for in-season, local, budget-friendly produce, especially vegetables.” 

Dalhousie University’s Agri-Food Analytics Lab recently released its latest Canadian Food Sentiment Index report, which shows how much inflation remains top of mind for consumers.

“It’s the number-one concern still, but it’s not as severe as six months ago,” explains Charlebois. “Consumers are spending the same per capita on food as they were six or nine months ago, despite inflation.”

They may be spending the same, but they aren’t getting the same quantities or in some cases, quality.

Charlebois blames tariffs, counter-tariffs, and the recent retail tax holiday for keeping prices elevated. The tax, which ran from December to February, was meant to address high prices for a range of goods, including produce. “Studies have shown it actually pushed prices higher,” he says.

“We all do best when the terminal is busy and competitive.”

Over at the OFT

The 40-acre Ontario Food Terminal is critical to Canada’s food supply, handling 5.6 million pounds of fresh produce per day and serving buyers from more than 5,000 businesses.

“I’m pleased to see that the traffic of customers coming to the terminal continues to grow steadily,” says Morton. “However, we’re still not at the levels we were before 2020.

“We all do best when the terminal is busy and competitive. The cooperation and competition between the 21 wholesalers and the Farmer’s Market area is essential to feeding our area, and to some extent, all of Canada.”

“There’s been a decline in independent retailers,” notes Amodeo. “That’s a concern—the next generation is not interested in taking over, and they’re selling the business or property or both.”

Amodeo says some of the contraction is balanced by startups in the area catering to a wide range of ethnicities from China, India, Pakistan, and Sri Lanka to more recent arrivals from Afghanistan, Lebanon, and other areas in and around the Middle East.  

Retail Rebalancing

Thanks to ongoing consumer price sensitivity, discount retail banners like Loblaw’s No Name, Metro’s Food Basics, and others are expanding.

“In Toronto, we’re seeing continued strength from discount formats like No Frills and FreshCo, while premium players like Farm Boy and Longo’s remain steady by focusing on quality and fresh assortments,” comments Hillion.

“Looking ahead, the divide between value and premium is likely to grow, with mid-tier retailers facing the most headwinds.”

At the same time, “There’s a movement toward small, less costly urban locations,” observes Charlebois. BestCo FreshFoods, Rabba, No Frills, and other operators have recently opened small-format stores in Toronto.