The U.S.-based Mexican-themed chain’s finance chief Jack Hartung said its margins would be reduced by 20-30 basis points if the tariffs suggested by Trump go up to 25 per cent, pushing up prices of avocados — the key ingredient in guacamole.

Mexico is the largest supplier of agricultural produce to the United States, exporting more than $8 billion worth of vegetables last year, including $2.07 billion worth of avocados, according to the U.S. census bureau (all figures US$).

“We know that we could easily solve the volatility in our supply chain by purchasing pre-mashed or processed avocados,” Hartung said in an email.

“But we… believe that using whole, fresh ingredients… leads to better tasting guacamole.”

Chipotle is averse to switching to cheaper pre-mashed avocados, mainly as its marketing message centres around the use of fresh ingredients.

To reduce its dependence on Mexico — the world’s largest producer of avocados — the company has been sourcing the crop from other countries such as Peru and Chile in the last several months, spokeswoman Laurie Schalow told Reuters.

According to Chipotle’s last annual filing, a “substantial volume” of its produce is grown in Mexico and other countries, and any rise in prices of ingredients like avocados would affect its operating results.

Chipotle is among the first U.S. companies to warn of pressure on prices from Trump’s commitment last Thursday to impose a five per cent tariff, rapidly ratcheting higher to 25 per cent on Oct. 1, on all goods coming from Mexico unless illegal immigration across the southern U.S. border halts.

“We could also consider passing on these costs through a modest price increase, such as about a nickel on a burrito,” Hartung said.

Chipotle’s shares fell 1.6 per cent on Monday, having lost three per cent on a broadly weaker New York Stock Exchange on Friday.

— Reporting for Reuters by Uday Sampath in Bangalore.

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Chipotle also said it would spend about $10 million to help local suppliers adhere to the company’s new safety measures.

The popular burrito chain had already told investors in December about its plans to increase testing of ingredients and centralize some processing of food.

The meeting, excerpts of which were broadcast over Twitter’s live-streaming app Periscope and in tweets, started at 11 a.m. ET, hosted by Ells and co-CEO Montgomery Moran.

The company said more than 50,000 employees tuned in via satellite in more than 400 viewing locations, including theaters.

Ells said he was deeply sorry that some people became ill after eating at Chipotle. “Committed to make sure it won’t happen again,” Ells said at the meeting, according to tweets from the company’s official Twitter handle.

Chipotle’s shares have lost nearly a third of their value and sales have plunged about 30 per cent since November, when the first reports of E. coli sickness linked to the chain emerged.

The E. coli outbreak, which the U.S. Centers for Disease Control and Prevention said on Feb. 1 appeared to be over, started in October last year and sickened more than 50 people in 14 states.

The company announced a slew of new food safety measures in December, which involved preparing bell peppers, tomatoes and lettuce in a central kitchen instead of its individual restaurant kitchens.

The company also said it would blanch avocados, onions and jalapenos, before they were used.

Company executives on Monday outlined the same food safety measures.

Ells said the food safety changes would not compromise taste or its commitment to “food with integrity,” a policy that focuses on using organic produce and antibiotic-free meats when those ingredients are available.

Last week, the chain reported its first decline in quarterly same-store sales as a public company, hurt by a sharp drop in customer visits due to the outbreaks.

The company also said earlier this month it was the subject of a national criminal investigation, related to an outbreak.

— Reporting for Reuters by Siddharth Cavale and Subrat Patnaik.

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Rivals such as Chipotle Mexican Grill and McDonald’s have announced similar supply-chain shifts, adding pressure on U.S. livestock producers to cut human antibiotics from their beef, hogs and poultry production.

Advocacy groups said they were about to present Subway with a petition demanding the company set a timeline for its restaurants to stop serving meat from animals that had been treated with antibiotics.

Subway said customers will be able to start buying chicken raised without antibiotics at its more than 27,000 fast-food restaurants starting in March. The company did not state when antibiotic-free turkey will become available.

By 2018 it expects to shift all chicken and turkey supplies over to antibiotic-free meats. The company said that within six years after that, it will begin serving pork and beef only from animals raised without antibiotics.

The plans only apply to the U.S. stores’ suppliers, but while those moves are underway, a company spokesperson said Monday, the chain “will continue to work with our suppliers in Canada and around the world to make progress on all our initiatives.”

When a “Canada-specific” timeline to supply antibiotic-free meats to the chain’s Canadian stores is available, the company “will be in touch,” the spokesperson said.

“A change like this will take some time, particularly since the supply of beef raised without antibiotics in the U.S. is extremely limited and cattle take significantly longer to raise,” said Dennis Clabby, executive vice-president of Subway’s independent purchasing co-operative. “But, we are working diligently with our suppliers to make it happen.”

Subway’s was one of the most aggressive moves by the food sector to reduce use of antibiotics in meat production. The Natural Resources Defense Council and U.S. Public Interest Research Group said they and other groups were about to deliver a petition with nearly 300,000 signatures calling for a concrete timeline for the step.

Subway officials could not immediately be reached for comment about the petition.

Public health experts and federal regulators have long been concerned that routine feeding of antibiotics to animals could lead to antibiotic-resistant superbugs, a health hazard for humans.

But finding enough protein raised in the U.S. without such drugs has proved to be a challenge for food companies.

McDonald’s has said it plans to source only chicken raised without antibiotics important to human medicine by 2017 for its U.S. restaurants. Dunkin’ Donuts will prohibit suppliers from using medically important antibiotics or antimicrobials in healthy animals, but has no timeline.

Many large U.S. fast-food chains still serve meat from farm animals that have been routinely fed antibiotics, consumer groups said in a report released last month.

Subway in June also announced a new policy for all its North American operations, removing all artificial colours, flavours and preservatives from its sandwiches, salads, soups and cookies.

— P.J. Huffstutter is a Reuters correspondent covering the ag sector from Chicago. Includes files from AGCanada.com Network staff.

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Subway, Starbucks, KFC and Domino’s Pizza were among the industry leaders graded “F” for their antibiotic policies in the report from consumer and health groups, titled “Chain Reaction,” released Tuesday.

The groups, which did not release results to companies prior to publication, based their grades on public statements, survey responses and correspondence with individual chains. As a result, companies given failing grades were not immediately able to comment.

An estimated 70 per cent of antibiotics important to human health are sold for use in meat and dairy production.

Concern is growing among public health experts that the overuse of such drugs, particularly those important to human medicine, are contributing to rising numbers of life-threatening human infections from antibiotic-resistant bacteria dubbed “superbugs.”

The U.S. Centers for Disease Control and Prevention (CDC) estimates that two million people are infected with drug-resistant bacteria each year and 23,000 die.

“From bacon cheeseburgers to chicken nuggets, most meat served by America’s chain restaurants comes from animals raised in industrial-scale facilities, where they are routinely fed antibiotics to prevent disease that is easily spread in crowded, unsanitary, stressful conditions,” said Kari Hamerschlag, a lead author of the report who is senior program manager at Friends of the Earth.

Subway was cited, in particular, for failing to publicly state a policy or plan to cut antibiotic use in the meats it buys, despite repeated requests by the report’s authors for clarification.

Chipotle Mexican Grill and Panera Bread finished with “A” grades, having won loyal followings for policies that include strict limits on antibiotic use.

Chick-fil-A, which is making meaningful progress toward its goal of only buying chicken raised without antibiotics by 2019, got a “B” in the report.

McDonald’s and Dunkin’ Donuts got “C” grades. McDonald’s plans to only source chicken raised without antibiotics important to human medicine by 2017. Dunkin’ Donuts aims to prohibit suppliers from using medically important antibiotics or antimicrobials in healthy animals, but it has not set a timeline.

Other groups contributing to the report included the Natural Resources Defense Council, Consumers Union, Food Animal Concerns Trust, Keep Antibiotics Working and the Center for Food Safety.

— Lisa Baertlein is a Reuters correspondent covering the U.S. restaurant and grocery sectors from Los Angeles.

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The world’s largest fast-food chain, with more than 36,000 restaurants around the globe, just finished one of its toughest years in decades.

It struggled to recover from a food scare in China that battered Asian sales and wrestled with economic weakness and political upheaval in Europe, its top revenue market. The company also lost market share to rivals in the U.S., where its image has been dented by frequent protests from workers seeking higher wages.

Sales at established restaurants, a closely watched gauge of performance also known as comparable sales, fell during the fourth quarter and for all of 2014. Revenue and net income suffered the same fates.

CEO Don Thompson, who took the helm in July 2012 and is under pressure to turn the business around, said he expected the trend to continue as McDonald’s works to make the business to be more nimble and responsive to customers.

“January comparable sales are expected to be negative and results are expected to remain pressured, particularly in the first half of the year,” Thompson said in a statement.

The company, trying to find the right recipe for diners’ growing appetite for healthier and fresher food, is trimming complicated menus, giving more control back to restaurant operators and testing customized burgers and sandwiches to compete with popular restaurants such as Chipotle Mexican Grill and Subway.

Fourth-quarter net income dropped 21 per cent to $1.1 billion, or $1.13 per share, while revenue fell more than seven per cent to $6.57 billion (all figures US$). Global sales at established restaurants were down 0.9 per cent.

U.S. comparable sales in December offered a glimmer of hope, rising 0.4 per cent and marking the first increase since October 2013.

McDonald’s set a 2015 capital spending target of around $2 billion, down from about $2.7 billion last year.

Company shares, which have underperformed rivals, the Dow and the S+P 500, dipped 0.4 per cent to $90.62.

— Reporting for Reuters by Lisa Baertlein in Los Angeles and Yashaswini Swamynathan in Bengaluru.

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The burrito chain’s move caused a supply shortfall that is hitting about one-third of its roughly 1,800 U.S. restaurants.

It also underscored the clash between the U.S. agriculture industry, commodity traders, food companies and U.S. consumers, who have become increasingly concerned about what happens to their food before it reaches their plates.

While animal rights activists heralded the news, others were dismissive of supply chain squeeze having much impact on the broader food or farming sector.

“It sounds like the problem can be fixed as soon as they take the little pigs for a walk,” said James Burns, president of Chicago-based JBS Trading Co., a commodities brokerage firm.

Chipotle made the decision Friday to cease buying pork from an unidentified supplier after one of its own auditors found “inconsistencies” with company standards requiring that pigs be raised with access to the outdoors or in deeply bedded barns.

Chipotle also bans the use of antibiotics, but that was not the issue in this case, spokesman Chris Arnold said. Arnold declined to name the producer, but said it is not Niman Ranch, a long-time Chipotle supplier.

Alternate proteins

Diners choose braised pork “carnitas” as the protein in about seven per cent of all burritos, tacos, bowls and salads sold at the chain, Miller Tabak + Co. analyst Stephen Anderson said.

He said the move should strengthen Chipotle’s relationship with customers, many of whom like its “food with integrity” policy that focuses on using organic produce and antibiotic-free meats when those ingredients are available.

“It shines their halo, but it has the potential to affect first-quarter” results, said Anderson, who expects most Chipotle customers to switch to alternate proteins.

Citing the risk of lost sales, Anderson cut his first quarter per-share earnings forecast to a range of $3.84 to $3.87 from $3.93. He also lowered his growth forecast for sales at established restaurants to 10 to 10.3 per cent from 11 per cent.

Chipotle, which declined to say how much pork it buys each year, is seeking to source more pork from existing suppliers. It currently uses pork shoulder and is exploring adding pork loin to its orders, Arnold said.

— Reporting for Reuters by Lisa Baertlein in Los Angeles, Theopolis Waters and Tom Polansek in Chicago and Sruthi Ramakrishnan in Bengaluru.

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