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Pricing under the carbon border cost shock

Food and beverage entities facing carbon border and insurance repricing pressure

Scenario analysis

Food & beverages (all industries)

Publication date: 26 Jan 2026

By Eye For Business

AT A GLANCE

  • Firms should consider CBAM fertiliser costs and set a pricing “lens” around a metric of margin variance over a 3–5 year timeframe

  • Managers can stress-test IFRS 15 revenue judgements and IAS 37 provisioning where pass-through is constrained

  • Firms should run quarterly ISO 31000 reviews and track FAO Food Price Index moves as an early indicator

The WFP and FAO report 638-720 million people faced hunger in 2024, with food price inflation slowing progress, while the EU Carbon Border Adjustment Mechanism (CBAM) for fertilisers is set to add 7% to costs. Food and beverage firms must choose between differentiated pass-through (protecting staple affordability) and indiscriminate pass-through (preserving margins), yet CBAM scope uncertainty makes the demand response difficult to forecast. Amid the challenges of sourcing and pricing, this scenario analysis outlines controllable “levers” to show how pathways affect margin variance and IFRS 15 and IAS 37-related decisions, aligned with ISO 31000.

Assumptions and decision focus

The key decision focus for any related scenario is pricing over three to five years, given rising input costs and constrained cost pass-through. Food and beverage manufacturers are unable to pass through the full cost of commodities, packaging, energy, regulatory compliance and CBAM-linked inputs, leading to margin compression. Retailers face competitive and political constraints on shelf price inflation, particularly in value formats and lower-income markets.

Alternate futures

There are three credible types of response. Indiscriminate full pass-through of carbon and input costs is a plausible but rejected alternative in this analysis. Differentiated, disciplined pass-through with targeted protection for low-income consumers is the most likely course, while broad cost absorption to protect low-income consumers and volumes could sacrifice margins and become unsustainable.

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Impacts and exposures

From a finance and risk standpoint, there is an inevitable risk of sacrificing a portion of short-term margin (perhaps 1-3 percentage points of operating margin in value categories). CBAM currently covers fertilisers but its scope is under policy review, signalling a risk of wider exposure for agrifood chains. Insurance repricing should be treated as a signal of balance sheet risk, not just a cost to absorb, given that only about 20 to 30% of climate-induced farm losses are insured in developed countries and coverage is often lower in developing nations.

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Actions and audit evidence

Differentiated, disciplined pass-through, combined with targeted cost and risk reductions, appears to be a prudent response to protect access to nutritious foods for low-income consumers. Finance teams should integrate affordability and nutrition metrics into investment and portfolio processes and monitor distributional effects as part of the decision record for audit purposes. For assurance readiness in general, all outputs should be documented with clear sources, data version control, explicit assumptions and limitations, and reviewed by human experts within the firm.

FURTHER READING

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