Understanding Tariffs, Inflation, and Local Food Systems: Key Takeaways from the Montgomery County Food Council’s Local Food Procurement Working Group
On Wednesday, July 30, 2025, the Montgomery County Food Council hosted a session of the Local Food Procurement Working Group. The focus was on how current trade policies and macroeconomic trends are shaping food procurement at the local level. The discussion brought together academic and retail experts, along with regional stakeholders, to explore the effects of tariffs, food inflation, and supply chain uncertainty.
The session featured presentations from:
- Dr. James MacDonald, Research Professor in the Department of Agricultural and Resource Economics at the University of Maryland
- Mike Houston, General Manager of the Takoma Park-Silver Spring Co-op
A full recording and presentation materials are available here. Below is a summary of key insights and implications.
Economic Effects of Tariffs
Dr. James MacDonald presented an analysis of the projected economic impacts of tariffs. He estimates that consumer prices could rise by 4 to 7 percent over the next year, as tariffs compound existing inflation. This would likely lead to a decline in national productivity and slower income growth.
Long-term, Dr. MacDonald projected a potential decline of up to 0.5 percentage points in annual GDP growth. Products with a high dependency on imports will see the most significant price increases.
He also noted that low-income households will be disproportionately affected, as they tend to spend a greater share of their income on essential goods like food. He recommended that state and local governments consider targeted support programs to help buffer these effects.
Workforce Disruptions and Production Shifts
Participants raised concerns about the labor market, particularly the effects of immigration enforcement on the food system. Dr. MacDonald confirmed that deportations are shrinking the available labor force, especially in agriculture and food processing. He encouraged stakeholders to explore resources from researchers like Diane Clemens at Montana State University, who studies automation trends and the shifting geography of food production.
There was also discussion of greenhouse producers and the potential for automation, along with increased food production in Mexico as a response to labor shortages in the U.S.
Food Inflation and Consumer Behavior
Mike Houston provided a retail perspective, analyzing recent food inflation trends. Beginning in 2021, food prices rose sharply due to global disruptions such as the war in Ukraine, avian flu outbreaks, and extreme weather events.
Interestingly, consumer behavior did not follow historical patterns. While inflation typically leads to a reduction in food spending, retail food sales actually increased during 2022 and 2023. This indicates that demand for food, especially staples, has remained relatively inelastic even as prices rose.
Houston also addressed the uncertainty around tariff implementation. Although reciprocal tariffs ranging from 10 to 49 percent were originally scheduled to take effect in April 2025, they have been repeatedly delayed. Currently, a general 10 percent tariff is in place.
Case Study: Tariff Effects on Banana Pricing
To illustrate how tariffs affect everyday grocery items, Houston shared a case study on bananas imported from Ecuador. A 10 percent tariff raised the wholesale cost from 71 to 75 cents per pound. If the Co-op maintained its retail price at 99 cents per pound, its profit margin dropped from 28 to 24 percent.
To preserve the original margin, the price would need to rise to $1.19 per pound. However, this pricing change risks alienating price-sensitive shoppers, especially since 99 cents is a psychological pricing threshold.
In comparison, a national discount retailer charges $2.39 for organic bananas, which breaks down to $1.19 per pound. The Co-op chose to keep the 99-cent price, absorbing the reduced margin in favor of affordability and consistency for customers.
Supply Chain Inequities and Consumer Advice
Houston introduced the concept of the “waterbed effect,” where large national retailers use their purchasing power to negotiate better prices. This often shifts higher costs onto smaller businesses, who lack similar leverage.
He also addressed additional pressures on the food system, including:
- Labor shortages caused by immigration enforcement
- Higher domestic costs from companies relocating production to the U.S.
- Consumer confusion in the face of inconsistent price signals
He encouraged consumers to use price comparison tools, support independent and community-based retailers, and rely on their own judgment when evaluating pricing.
Resources for Stakeholders
To assist businesses, institutions, and policy professionals in navigating these challenges, the following resources were shared:
Trade and Tariff Information
- Reed Smith Trade Compliance Resource Hub
- U.S. International Trade Commission Tariff DataWeb
- Reuters Tariff Watch Newsletter
Policy and Economic Research
- Yale Budget Lab
- Congressional Bill HR1 Summary
- Montgomery County Council Budget Summary by Andrew Friedson
Sector-Specific Guidance
Looking Ahead
This session reaffirmed the need for coordinated efforts across government, retail, and nonprofit sectors to respond to ongoing market disruptions. As tariffs, inflation, and labor instability continue to shape the food economy, regional actors must stay informed and agile.
The Montgomery County Food Council remains committed to fostering these conversations and providing access to timely research, expert perspectives, and strategic tools for all stakeholders.
To stay involved, subscribe to our newsletter or contact us at info@mcfoodcouncil.org.