Economic outlook for food & beverage sectors

Towards the end of 2024 the global economy was relatively healthy. Equity markets were trading at record highs, inflation was slowly receding, and despite the persistent inflation consumer spending remained resilient. The start of 2025 has been different, so what do stakeholders and leaders in the sector need to consider?

The global economy is poised for a significant change as it awaits the implementation of new tariffs. Markets are volatile, with investors and businesses closely monitoring developments, aware that tariffs could have far-reaching consequences.

In the food industry, companies who trade with the US are reassessing their strategies, anticipating disruptions in supply chains, and preparing for potential cost increases. Consumers, too, are bracing for the impact, expecting price hikes on everyday goods.

Until the outcome of trade negotiations is known, the outlook is charged with uncertainty. Geo-politics aside, the underlying macro-economic trends were already dynamic, albeit more stable than a year ago.

We examine some of the key macro-economic trends and the impact they are having.

Barrie O'Connell

Partner, Head of Clients & Markets

KPMG in Ireland

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Where is commodity and food price inflation?

Inflation persists. The FAO Food Price Index (FFPI) averaged 128.3 points in April 2025, up 1.2 points (1.0 percent) from March. This increase was driven by higher prices in the cereal, dairy, and meat price indices, which outweigh decreases in sugar and vegetable oils.

Year-on-Year the FFPI was 9.0 points (7.6 percent) higher than its level a year ago but remained 31.9 points (19.9 percent) below its most recent peak in March 2022. The outlook for the FFPI suggests it will remain sensitive owning to global economic conditions, including inflation rates, and most of all changes in trade policies, the most concerning of which is tariffs.

Where is the consumer?

The consumer continues to evolve. While time poor and convenience driven, they are prioritising health and nutrition. Recently there has been a move back to high protein consumption while growth of meat and dairy alternatives has slowed.

Sustainability and clean label are important to the consumer and align with their values. Persistent high inflation and cost pressures mean that consumers are opting for value-oriented products like own label.

Where it comes to a choice between a sustainable or a value-oriented product, the value-oriented product tends to win out. Finally, consumers are tech-savvy.

Gen Z are beginning to comprise a bigger proportion of consumers with buying power, so product digital integration is becoming crucial, as consumers rely on detailed product information and digital experiences to make purchasing decisions.

Labour availability and cost

Labour shortages and increased costs persist. These trends are underpinned by an aging workforce and the aftermath of the COVID-19 pandemic and affect all segments of the industry from agriculture to food service.

Wages pressures also continue. Minimum wage increases and higher wages generally are required to offset employee scarcity- this pressure margins. This outlook is likely to continue. Immigration is key to labour availability. It keeps food industry jobs filled globally and policy shifts towards protectionism and deportation will mean job vacancies will rise.

While companies may offset this to an extent with automation, people are key to farming, the production line and to serving food. Labour shortages will challenge companies’ ability to get food to consumers.

What is the impact of tariffs?

The 90-day pause by the US government on the Reciprocal Tariff Policy is due to end on 8 July 2025. Tariffs impact food systems mainly through increase food prices by raising import costs and disrupting supply chains. The USA imports 20% of its total food supply and the current universal 10% tariff is impacting already. Importers, in the main have initially stockpiled.

On implementation of reciprocal tariffs, exporters and importers may initially absorb some of these costs to maintain their competitiveness, but price increases will inevitably flow to consumers. The implementation of reciprocal tariffs (20% for Ireland) would have a material impact on US consumers and Irish exporters alike.

Ireland’s food and drink exports to the US are in the region of €2.0 billion, with the majority comprising dairy and spirits. While Irish exporters weathered the last regime of US targeted tariffs in 2019 – 2021, these wide-ranging tariffs are likely to have more of an impact on consumer discretionary spend. A negotiated solution is key.

Regulation and deregulation

In the last year we have seen several global elections and, in the aftermath, an appetite for change and economic competitiveness. Changes in regulations are being seeing in different ways.

In Europe, over the last number of years we have seen strong regulation of food where labelling, nitrate levels, flavour use, unfair trade practices all have been legislated for. This continues where the consumer protection is at the core of EU regulation.

However, the EU has realised that it needs to be more self-sustaining and competitive. In January 2025 the EU introduced the Competitiveness Compass which focuses on fostering innovation, achieving sustainability, and ensuring autonomy to create a resilient EU economy.

This time last year most companies were getting ready for EU Corporate Sustainability Directive Reporting. As part of competitiveness measures, most companies will now be exempt from the requirement and the associated cost, which is material. This shows how the EU are working hard on being business friendly.

In the US, there is a strong de-regulation and efficiency agenda which has been widely reported. However, when it comes to food, the opposite is true where the administration introduced its Make America Healthy Again commission. The most recent of its initiatives is the elimination of certain artificial food dyes from the US food supply by the end of 2026.

This is a significant change for the food producers impacted, who will need to reformulate their product. This is one of several initiatives that the current administration has that may impact on the formulation of products.

Disruption

The global market for weight loss drugs is estimated at $6 billion. By 2030 it is estimated to reach $105 billion. If weight supressing medications continue to develop and if a pipeline of new alternatives including orally ingested options continue to grow, consumer eating habits and food preferences may be materially impacted, leading to a decrease in the consumption of high-calorie snacks and fast food.

The impact of weight loss drugs will depend on availability, cost and whether a large proportion of the population can afford them. While this all needs to be played out, companies are assessing the impact of how weight loss medication can be a game changer for consumption trends.

Ireland

In Ireland, we have seen periods of growth, followed by periods of challenge for many years.

Another common trend has been the industry’s ability to adapt. Ireland’s food and beverage industry is built on science and innovation. Its leaders have always seen a way around challenges to opportunities and have consistently demonstrated their ability to evolve. In a country where we know how to produce sustainable healthy food, and where we know how to play in international markets, we as always are primed to navigate increased macro-economic challenges.

It will take everyone working together, our lawmakers, industry and our institutions including universities to innovate the food that the consumer of tomorrow wants.

As the global food and beverage industry faces into a period of heightened uncertainty—shaped by tariffs, evolving consumer behaviour, regulation, and innovation—it is clear that resilience and adaptability will be key.

While challenges are real and immediate, from supply chain pressures to shifting trade policies, so too are the opportunities for those willing to pivot, collaborate, and innovate.

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