ANAHEIM, Calif. — Arjun Chakravarti, managing partner of a Chicago-based consultancy Cogknition Analytics, offered a look at the current economic climate globally and in the U.S. to kick off his session at the International Fresh Produce Association’s 2025 Global Produce and Floral Show.
In the first quarter of the year, Chakravarti says businesses pulled back due to the uncertainty of trade policies, but by the second and third quarters, businesses began to adapt. He says what’s happening is almost a tale of three economies in the U.S. as the economies of Southern states in the U.S. are growing much more rapidly than the rest of the U.S. States, such as Pennsylvania, Indiana and Wisconsin, are also growing as well, but states such as California and New York are on the edge and could tip into a down cycle.
“We’re really seeing that the economy is muddling along at 1.5%,” he says. “We had kind of a collapse at the beginning of the year, but we got some pull of growth back in the middle of the summer and people have started to get more clarity.”
But, with the 1.5% economic growth rate, it’s also important to consider inflation’s impact on the economy. While inflation sits at about 2.9% percent, the economy shows signs of slowing, Chakravarti says. He points out, however, that inflation doesn’t feel as high as it did in 2022 when the inflation rate peaked at 10%.
“It’s quite high, given the lack of growth that we have right now,” he says. “You have to think of what or how much inflation we are getting, given the amount of growth that we have.”
Chakravarti says that while imports face inflation rates twice as high as domestic goods, consumer spending continues to show growth — but not all consumers are fueling that growth.
“We’ve started to see, particularly since COVID, this compression towards who is spending,” he says. “The top 10% of spenders in the U.S. account for 50% of total spend. So, that’s why you’re seeing high spending still driving the economy, but it’s being driven by a narrower and narrower group of people.”
Chakravarti says this type of distribution hasn’t happened in the U.S. in around 100 years. These compressed spending habits and slowing wage growth in lower-income households have impacted the economic outlook for spending.
“Ninety percent of households report changing grocery and restaurant behavior in response to inflation,” he says. “Ninety percent are deal-prone right now; 60% are saying they’re eating out less; 40% are switching to private label; 38% are making checklists to make sure that they’re really being mindful about what they spend at the store; and then waste mindfulness is even accounting for about 25% of behaviors as well.”
Chakravarti says produce industry businesses need to ensure that marketing efforts align with these shifting shopping habits.
“You’ve got to really track where the inflation is going,” he says. “So, if you’re finding that these folks are going to be fairly constrained in their spending and they tend to spend the dollars that they have once they get them in the pocket, that’s where you would see inflation, but those folks are going to be fairly depressed in spending.”
Global Perspective
In terms of the global economy, Spain is the most well-positioned in the aggregate with higher tourism, lower gas costs and higher consumer confidence, Chakravarti says, adding that this is a good opportunity for the country.
Germany, as an export-based economy, now competes with China rather than selling directly to the country, he says. Germany keeps its debts low, but if it decides to invest in infrastructure, it could boost the economy. The country has also faced some gas price increases due to the war between Russia and Ukraine.
France and Italy face high debt and low investment. Italy also faces a rapidly aging population and higher oil and gas risks. The Netherlands, too, faces gas availability challenges and issues with competing with China instead of selling to China.
“When you net all of that out, I’d say Spain is the best sort of opportunity inside of the EU right now in terms of consumers’ ability to spend and people actually having money in their pocket, not being as worried about other expenses like gas,” Chakravarti says.
Canada’s economy fares better than expected due to the majority of its trade being exempt under the U.S.-Mexico-Canada Agreement, he says.
“And that has helped not only in terms of mitigating some of the losses that were expected from the United States but also in allowing them to be more competitive in selling abroad as well,” he says.
But Chakravarti says Canada still faces some structural issues that need to be worked out; it’s important to see if there are structural reforms that help consumers become less controlled by high housing prices.
“They need to improve their economies by actually trading between their provinces a bit better,” he says. “And they also need to make sure that people are putting their money into something other than real estate right now in Canada.”
Pulling It Together
Factoring in the current economic picture, Chakravarti says he sees a lot of opportunity for the produce industry for those who understand the needs of category managers.
“A lot of produce really, really works in terms of marketing in the mid funnel, your ability to … move the needle in the middle of the funnel with great innovation is really offsetting a lot of these tariff effects,” he says.
Chakravarti says there are opportunities on the demand side that, when married with the opportunities on the supply side, could be seen in tax benefits for investing in new technology. He says the 20% pass-through deduction for LLCs and S Corps, the increase in SALT (State and Local Tax) Cap can all help produce industry businesses through changes in demand, especially when a produce business focuses on promotions.
“There’s a lot of ability for you to be seen as major players in those systems to offset some of the demand costs,” he says.
Chakravarti says he sees fertilizer and anything coming from China as a risk for inflated costs. He says import fees on produce such as bananas, grapes and tomatoes are also a challenge.
“I’m talking to a lot of importers who are telling me, ‘We have to make entry exit decisions right now from certain markets to manage cash flow,’” he says. “Where there’s opportunity for investment, maybe from a tax basis, is on the cold chain side because you’re seeing increases in compressor refrigeration replacement costs, holding costs are getting higher and spoilage costs are going up as well.”
Chakravarti says retailers have the most power in the market due to the high pass-through rate to consumers.
“Produce is historically moderately price sensitive and income level is really the bigger determinant here,” he says. “When you start to take all of this together and you start to think, what are the costs really going to be? We’re looking at an anticipated pass-through of about 6 cents to 8 cents per dollar.”
Chakravarti points to a Harvard study that tracks price changes. With a commodity such as avocados, which is embedded with high-income consumers, he says that the tariff pass-through goes directly to the consumer, who is willing to pay for the product.
“If you’re dealing with other parts of the produce chain, you’re seeing maybe about as low as 50% is actually hitting the consumer in terms of who ends up paying the incremental dollar for every tariff that we pay,” he says. “What we’re seeing is that retailers are able to pass through in the long run, the most both downstream and upstream to consumers.”
Importers with weaker foreign currencies may pay a lot more of the trade impacts, Chakravarti says.
Another thing to look at, he says, is that there will be a slowing of population growth, which will directly impact demand and supply in the future.
“We actually expect that if this is going to be the trend moving forward, that we’ll get a population decline in the next 10 years,” he says. “So, this is something we really need to start tracking over the long run.”
Chakravarti says that produce industry businesses need to balance consumer pressures with business upsides.
“That starts with an understanding of this wonderful product that you have, that’s an amazing complementary good inside of these retail media networks,” he says. “There’s major opportunities for figuring out how to partner with your category managers and retail to really move the needle there and help them be great and be great partners to them. We think that there’s major returns there that can help offset some of the tariff effects.”
Understanding retail loyalty programs, Chakravarti says, can help produce industry businesses.
“Truly understanding sort of how to become next level in customer acquisition and retail partnering is going to be critically important moving forward,” he says.
