Rates, Raw Materials, and Risk: Economic Considerations for Food Manufacturers in 2026

Key takeaways:

• Plan for “lower, but not low” interest rates: Financing may ease compared to recent years, but capital will still reward discipline and strong cash conversion. 
• Commodity relief will be uneven: Broad indices may soften, yet category-by-category volatility (and climate risk) will keep procurement and pricing strategy front and center. 
• Regulatory, labor, and trade uncertainty will shape budgets as much as demand: Build scenarios, protect your must-win investments, and set growth targets you can deliver under multiple conditions.

2026 will likely feel like a “normalization” year, but not a return to the old normal. Interest rates may trend lower, inflation may cool further, and some commodity pressures could ease. At the same time, food manufacturers will be budgeting through a mix of consumer trade-down behavior, health-driven demand shifts, trade policy uncertainty, evolving packaging rules, tight labor in key roles, and a selective mergers and acquisitions (M&A) market.

To help leaders across finance, operations, procurement, sales, human resources, and compliance set realistic plans, this outlook focuses on what matters most for budget assumptions, capital allocation, and achievable growth expectations, with practical actions you can take early in 2026.

A macro baseline: Steady growth, cooling inflation, and slowly easing rates

A helpful starting point for 2026 budgets is the U.S. Federal Reserve’s Summary of Economic Projections from December 2025. The median projection shows:

• Real gross domestic product (GDP) growth around 2.3% in 2026
• Unemployment around 4.4% (still relatively low)
• Personal Consumption Expenditures (PCE) inflation around 2.4%
• A federal funds rate around 3.4% by the end of 2026

What this means for food manufacturers:

• Demand should be resilient, but not effortless. If growth is steady rather than booming, the winners tend to be companies that prioritize innovation that earns its keep and tight cost control.
• Price/mix gains may be harder to repeat. As inflation cools, consumers and retailers often push harder for price justification.
• Borrowing costs may ease, but lenders stay selective. Even with rate relief, capital generally flows to the best operators and clearest investment stories.

Interest rates and capital availability: Budget for discipline, not a windfall

Even if interest rates come down, borrowing will still be more expensive than it was for much of the 2010s, and that changes how growth gets funded.

What to expect in 2026

• Debt may get incrementally cheaper, but most companies will still feel pressure to prove returns (and preserve covenant headroom).
• Working capital will matter more than ever. In a slower-growth environment, cash conversion can be the difference between “options” and “constraints.”
• Capital availability may remain uneven. Strong performers can still access funding; weaker balance sheets may face tighter terms, more collateral requirements, and slower approvals.

Planning moves leaders can make now

For CFOs and finance teams

• Build your plan with three rate scenarios (base, downside, and upside). Don’t just model interest expense. Model customer demand, retailer negotiations, and inventory turns under each case.
• Consider whether 2026 is the year to rebalance fixed vs. floating exposure, especially if your business is sensitive to short-term rate swings.
• Revisit hurdle rates so they reflect the reality of capital costs, but avoid over-tightening and starving the business of productivity investments.

For operations and engineering

• Prioritize capital projects that deliver labor productivity, yield improvements, sanitation efficiency, and uptime. These are the kinds of returns you can defend in any macro environment.
• Add a “time-to-value” filter. Projects that pay back quickly often win in uncertain years.

Commodity price trends: Easing overall, volatile in the details

For 2026, the World Bank’s Commodity Markets Outlook (October 2025) projects broad-based easing in global commodity prices, with important nuance for food and packaging-related inputs:

• Global commodity prices are projected to fall further in 2026 (a multi-year downtrend), with energy prices forecast to decline again. 
• Food prices are expected to be roughly flat to slightly down in 2026. But that headline masks meaningful item-by-item movement.
• Fertilizer costs may remain a swing factor (important for upstream crop economics), with a projected easing after a sharp prior-year rise.

Why lower commodity prices may not improve your margins

Even if broad indices soften, manufacturers can still face pressure from:

• Category-specific tightness (a single ingredient can dominate margin)
• Weather volatility affecting crops and yields
• Trade restrictions and logistics disruptions
• Retail pricing dynamics (relief doesn’t always translate to higher margin if customers demand pass-through)

Turning volatility into advantage: Predictability beats perfect timing

Rather than treating commodity volatility as an unavoidable cost, some manufacturers are using a mix of hedging strategies, alternative risk transfer mechanisms, and data-driven forecasting to smooth input costs and improve predictability.

Susan Doering, global food, agribusiness and beverage leader at Aon, explains:

“Manufacturers that use these solutions to make their costs more predictable will be in a stronger position to maintain consumer pricing when commodity costs rise, compared to those who simply absorb volatility…”

In short, many manufacturers are better served by reducing volatility and improving cost predictability than by trying to perfectly time commodity markets.

Practical 2026 actions for procurement, R&D, and finance

• Segment ingredients by risk (high volatility/high margin impact vs. low volatility) and align contract length accordingly.
• Build formulation flexibility where feasible (approved alternates, multi-sourcing, and packaging substitutions that don’t harm consumer trust).
• Treat supplier relationships as a resilience asset: share forecasts, collaborate on contingency plans, and protect performance incentives.

Consumer spending patterns: Value-seeking continues, but health-driven shifts accelerate

Food demand is generally resilient, but where consumers spend (and what they avoid) can change quickly. In 2026, two forces can coexist:

1. Value pressure: Many shoppers remain price-sensitive, pushing private label growth, promotion intensity, and pack-size strategy.
2. Health and cleaner label scrutiny: Rising attention to ingredients and processing can influence which products win the basket.

In addition, GLP-1 use and increased awareness of ultraprocessed foods, Doering says, are pressuring manufacturers to rethink their offerings amid cost constraints.

What this means for food manufacturing leaders

• Assume more elastic demand for “nice-to-have” items. Budget promotions and pricing with more testing, not guesswork.
• Invest where you can defend value, such as convenience, functional nutrition, protein-forward offerings, and clearly communicated benefits.
• Make pack architecture a strategy. Value packs, entry price points, and premium tiers can coexist if price ladders are clear.

Trade policy uncertainty: More predictability, but don’t expect a full cost reset

Trade can materially affect ingredient availability, lead times, and landed costs, especially for specialty inputs.

David Lennarz, president of Registrar Corp, expects some stabilization, but with a reality check on costs:

“As global trade agreements continue to take shape, we expect 2026 to bring a measure of normalization to food imports… That said, manufacturers should not expect food prices to revert to pre-tariff levels. The market has fundamentally shifted, and many of the higher costs associated with sourcing and compliance are now permanent.”

Budgeting implications for supply chain and finance

• Model tariff and compliance costs as “sticky” unless you have a clear line of sight to change.
• Add a planning assumption for longer lead times on certain imported ingredients even when supply improves (customs, documentation, and port variability).
• Strengthen supplier qualification and documentation, especially if you sell across multiple regulatory jurisdictions.

Where technology fits 

Lennarz also noted a growing role for AI in formulation and regulatory workflows:

“AI is being used earlier in the formulation process to accelerate development and identify potential issues before they become costly problems… [and] help manufacturers manage complex requirements, monitor changes, and reduce compliance risk. In 2026, success will depend on pairing supply chain stability with smarter, technology-driven decision-making.”

So if you’re budgeting digital investment, prioritize use cases tied to time-to-market, compliance risk reduction, and cost-of-quality.

The 2026 M&A outlook: Selective deals, “flight to quality,” and tougher diligence

Mergers and acquisitions remain a viable growth path, but 2026 is likely to reward buyers and sellers who are realistic about valuations and deal structure.

Jeff Hechtman, partner in Kilpatrick’s M&A practice, expects continuation of recent dynamics:

“A slowdown or decline in economic activity in 2026 would likely dampen activity in the M&A market, particularly middle-market deals. This could lead to a ‘flight to quality’ in food industry M&A where the most desirable targets can command high valuations, while others at the lower end of the market may have to adjust their pricing expectations to get deals done, if they can be done at all. We would also likely see deal structures with more contingent consideration and more rigorous and lengthy due diligence processes.”

What leaders should build into 2026 plans

If you’re buying

• Budget for integration capacity (systems, plant networks, quality processes), not just the purchase price.
• Expect longer diligence cycles and put your best cross-functional team on it early.

If you’re selling (or raising capital)

• Be prepared to defend performance with clean data: customer concentration, margin drivers, food safety metrics, and supply continuity.
• Expect more earnouts (performance-based payments) and structure your internal targets accordingly.

Where deal activity may concentrate: Hechtman also pointed to “better-for-you” areas, such as alcohol alternatives, protein products, and healthier minimally processed offerings, as likely continued focus categories.

Labor market conditions: Unemployment may rise slightly, but skills will stay scarce

Even with unemployment projected around the mid-4% range, many food manufacturers will still face hard-to-fill roles, including maintenance, sanitation leadership, quality talent, industrial technicians, and experienced supervisors.

Susan Doering described the talent shortage as “a chronic challenge… driven by challenges in hiring and maintaining workforces… and immigration enforcement in the U.S. is driving workforce gaps and absenteeism.”

What leaders should align on in 2026

• Retention is a productivity strategy. Budget for training, supervisor capability, scheduling stability, and safety, not just wage increases.
• Build a pipeline for critical trades like maintenance, electricians, and automation techs. If you don’t have one, assume higher downtime and higher overtime.
• Treat automation as a workforce multiplier (where it makes sense), but budget for change management and skills uplift, not just equipment.

The “hidden” economic pressures: Packaging rules, compliance risk, and emerging contaminants

Beyond classic macro factors, 2026 budgets can get hit by “non-obvious” costs, especially regulatory and risk-driven.

Packaging compliance costs could become a more immediate issue

Gillian Garside-Wight, director of consulting at Aura, warned that packaging regulation is becoming a near-term financial planning item:

“2026 will be the year that Extended Producer Responsibility really takes hold… Businesses are going to need to ensure they have 100% accurate data on every component that makes up their packaging, or else the financial penalties are going to leave them reeling.”

So even if some program fees hit later, 2026 may be the year you fund:

• Packaging data systems and governance
• Supplier documentation and material disclosures
• Label and claim validation processes
• Legal review and risk reserves tied to packaging claims

Emerging contaminant risk is gaining attention

Doering also flagged an emerging area that can become costly quickly if ignored:

“Micropollutants, including microplastics, PFAS and pharmaceuticals… can end up in food through packaging, raw materials or even water… As carriers become more informed, we’re seeing both retraction of coverage and innovative thinking…”

Consider whether your 2026 plan needs incremental funding for testing protocols, packaging material reviews, water risk assessments, and insurance renewals.

A practical 2026 budgeting framework for food manufacturers

To set realistic growth expectations, align the organization on a small set of explicit assumptions. Then stress-test them.

1. Start with a “base case” you can explain in two minutes

Anchor on a macro baseline and document:

• Price/mix assumption by category
• Volume assumption by channel
• Commodity basket assumption (and what you will not assume)
• Wage and staffing assumption
• Capex envelope and payback rules
• Compliance/regulatory cost assumptions

(If your team can’t explain the assumptions simply, you’ll struggle to execute when conditions shift.)

2. Build two stress cases that force real decisions

Downside case ideas

• Promo intensity increases and price realization weakens
• One key input spikes due to weather or trade disruption
• A customer de-lists a top item or reduces inventory
• Labor absenteeism rises seasonally or by region

Upside case ideas

• Input costs ease faster than expected
• Productivity projects hit earlier
• Innovation outperforms and earns distribution gains

3. Protect the investments that create durable advantage

In uncertain years, across many food and beverage manufacturers, the best protected investments tend to be:

• Food safety and quality systems
• Maintenance, uptime, and yield
• Core brand/product renovations that defend value
• Supply continuity and dual sourcing
• Compliance data readiness (especially packaging and labeling)

For many food manufacturers, 2026 won’t be defined by a single macro headline. It will be defined by execution under mixed signals: moderating inflation, selective capital, uneven commodity movement, shifting consumer preferences, trade uncertainty, and persistent labor constraints. 

In this challenging environment, it’s important to set clear assumptions, plan scenarios early, protect resilience investments, and commit to growth targets you can hit even when conditions wobble.

FAQ for food manufacturing leaders

Q: What interest rate environment should we budget for in 2026?

A: A reasonable starting point is to assume rates ease modestly but remain elevated versus the 2010s. The Federal Reserve’s December 2025 projections show a median federal funds rate around 3.4% by end of 2026, which supports the idea of “lower, but not low.” 

Q: Will commodity prices go down in 2026?

A: Broadly, major outlooks anticipate easing, but it won’t be uniform. The World Bank’s October 2025 outlook projects continued softness in overall commodity prices and relatively flat-to-slightly-lower food prices in 2026, while individual items can still move differently. 

Q: How should we set pricing and promotion expectations for 2026?

A: Plan for more price resistance as inflation cools and shoppers remain value-seeking. Build a pricing plan that can flex by channel and pack size, and budget for testing rather than assuming one “right” national approach.

Q: What does the 2026 M&A market look like for food manufacturers?

A: Expect a selective market with a “flight to quality,” more diligence, and more earnouts (performance-based payments). If you’re buying, budget integration effort. If you’re selling, invest early in clean, defensible performance data.

Q: How do we budget for labor in 2026 if unemployment rises slightly?

A: Even if unemployment ticks up, skills scarcity can remain in plant-critical roles. Budget for retention, training, and supervisor capability (not just wage inflation), and treat automation as a productivity tool that still requires workforce enablement.

Q: Are trade and tariff costs likely to return to “pre-tariff” levels?

A: Many leaders should not expect a full reset. Supply may normalize, but higher sourcing and compliance costs can be persistent. So treat them as structural until proven otherwise.

Q: What “non-obvious” costs should we watch in 2026?

A: Packaging compliance and labeling risk (including Extended Producer Responsibility requirements in some jurisdictions) can move quickly from “later” to “now.” Also watch emerging contaminant concerns (like microplastics and PFAS) that may affect testing, materials, and insurance.