With a new president in office in the U.S., it’s crucial for F&B companies to keep up with policy changes and strategically plan for whatever the future holds.
Eric Kroll, principal with Baker Tilly’s manufacturing and distribution practice and the firm’s industry F&B practice leader, shared the following insights and tips with The Food Institute to help processors and manufacturers adapt to these potential changes.
What types of deregulation are most likely to occur in the F&B industry?
While we cannot predict what types of deregulation will occur in the next four years, the past could give us clues as to what aspects of industry the new administration could focus on. For example, we could see deregulation in the areas of energy, OSHA rules, EPA policies, banking, and product labeling.
If the administration rolls back green regulations that currently hinder domestic oil and gas drilling, overall energy costs might decrease, which would reduce the cost of energy for processors and manufacturers.
If there is less regulation in the banking industry, F&B companies may have more access to capital. Overall, deregulation could lower the cost of manufacturing products across the board.
How can companies benefit from deregulation while addressing sustainability and transparency concerns?
Companies will need to strike a balance where they may profit from deregulation while also being mindful of consumer and advocacy groups. This means closely monitoring trends and consumer preferences in the F&B space.
For example, fewer labeling regulations might benefit the industry but could cause counter-pressure from activists and consumers. In some cases, companies who have already placed emphasis on “clean” ingredients and transparency in product labels could see a competitive advantage in promotion and marketing.
Are there any risks of reduced regulation for manufacturers?
Deregulation in the industry could lead to unintended consequences. When the regulatory environment changes, companies must pivot to comply with new policies.
Manufacturers will need to gain an understanding of how the relaxed regulations impact their operating environment. For example, if food safety regulations become more relaxed and manufacturers embrace this leniency, will it increase the risk of food-related illnesses – and are these companies willing to accept that risk?
As regulations change, companies should engage with experts to mitigate compliance and enterprise risks.
How might an increased focus on domestic energy production affect energy costs?
An emphasis on domestic energy production could initially benefit processors and manufacturers. President Trump recently vowed for the U.S. to have “energy dominance” and reduce energy prices by 50% in his first year of office.
While this would benefit manufacturers, it remains a fluid situation. If domestic energy prices drop, it could bring down overall costs of production and transportation, which could increase profitability, driving capital expansion and innovation.
How could immigration policy changes impact labor?
Potential changes in immigration policy could impact the availability of labor in agriculture and food production.
The labor market is already tight, and there may be limited interest in these types of manual jobs. F&B companies need to assess their workforce and prepare for potential changes to ensure they can adapt quickly. Being prepared and adaptable will be crucial for these companies.
Which expiring Tax Cuts & Jobs Act (TCJA) provisions are most relevant to manufacturers?
From a tax perspective, companies need to track what’s happening with the TCJA passed in 2017 by Trump’s first administration. Many provisions will expire at the end of 2025, increasing tax burdens for most taxpayers.
From a tax-rate perspective, while the reduction to the federal corporate rate under TCJA was permanent, the reduction to the individual rates was not, which will expire at the end of the year. However, a lot of mid-sized processors and manufacturers are pass-through entities, including S-corporations, partnerships, and limited-liability companies, which are not taxed at the corporate rate. Owners report their share of business income on their individual returns. As TCJA rates expire, this will increase tax liability for businesses (IRS).
The TCJA also temporarily allowed 100% expensing for certain business properties, which we refer to as bonus depreciation. As of 2022, the 100% has started to phase down at a rate of 20% per year.
In 2025, taxpayers are eligible for 40% bonus depreciation. Absent tax reform will decrease to 20% in 2026 and 0% thereafter, impacting the timing of tax deductions businesses can take and their cashflow.
Tax reform will be complicated. Republicans will attempt to use reconciliation to pass a bill, but with razor-thin margins and a very diverse conference, it will require significant negotiation.
What steps can companies take to prepare for these potential changes?
Processors and manufacturers need to be proactive and strategic, as a changing regulatory environment, immigration crackdowns, expiration of TCJA provisions, and new tariffs could significantly impact the industry.
Companies that can pivot quickly while staying focused on core competencies will thrive. We have already seen an increase in processors and manufacturers working with consultants and other outside experts who track federal changes and can help them navigate in a dynamic business environment.
F&B companies can stay aware of recent developments by subscribing to news alerts and webinars about these topics. Getting involved with industry advocacy groups is another way to keep a pulse on Capitol Hill developments.
We don’t expect to see any significant changes in regulations associated with the Food Safety Modernization Act. Processors and manufacturers have modernized their systems over the last decade and are used to FSMA compliance.
Foreign supplier verification programs, the sanitary transpiration rule, traceability, and accredited third-party certification have become common practices, and consumers expect these safety measures to be in place. We do not expect to see more stringent regulation in this area because it could affect business operations.
From a technological perspective, we can expect to see increased AI and predictive analytics usage – both tools will help processors and manufacturers remain agile in the next four years.
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