CO2 Crisis – Current and Future Issues

Much of the press coverage of the unfolding CO2 crisis has focused on the comic possibility of a beer shortage during the World Cup. However, the supply squeeze has exposed a more concerning, structural vulnerability in Britain’s food supply chain that, if not addressed, has the potential to disrupt supply and prices in the future.

The current state of play

While some CO2 plants have agreed to re-start operations after having shut down for planned maintenance, fresh supplies will only start filtering through to firms in the next couple of weeks. This means that that we can expect the food supply chain to be experiencing continued disruption during that time which comes at a cost.

The hidden effects of the CO2 shortage will be felt far beyond what the consumer sees on supermarket shelves. If abattoirs and meat processing plants are unable to take-in animals and process products, there is the risk of a logjam of animals back to the farms and a consequent animal welfare issue.

It has become clear that  CO2 plays a critical part in the food and drink manufacturing process  and businesses can grind to a halt if they cannot secure an adequate supply. Some meat industry companies simply don’t have an alternative method of production that doesn’t rely on CO2, and re-configuring their plants is not an option. This means that companies are already closing production lines and asking staff not to turn up to work, impacting people’s salaries and putting pressure on company finances.

What are the CO2 plants doing?

The response of the CO2 industry is concerning and raises longer-term issues that need to be addressed. Nick Allen, CEO of the British Meat Processors Association (BMPA) said: “I’m receiving multiple reports from meat industry companies that CO2 suppliers are allowing a bidding war to break out amongst their customers, with only the biggest companies that have the deepest pockets able to compete for scarce gas supplies”

Mr Allen added “there have been instances of meat industry firms dispatching trucks, at vast expense, into Europe to source gas cylinders from smaller CO2 suppliers to keep factories rolling, but at a much-reduced capacity”.

Another concerning development are reports emerging that CO2 suppliers have started trying to invoke ‘force majeure’ in order to get around conditions in their supply contracts with customers. While this is clearly a tactic they are attempting to use (these are planned maintenance shut-downs after all), it is hindering the food industry now and provides another warning about what could happen in the future.

What are the future threats?

This crisis has highlighted the fact that the British food supply chain is at the mercy of a small number of major fertilizer producers (four or five companies) spread across northern Europe, who’s factories’ by-productwe rely on to keep our food chain moving.

Both the fertilizer producers and, by extension their CO2 customers in the food and drink industry, are reliant on commodity prices and demand for ammonium nitrate staying high. If this dips (which has been the case this year), less fertilizer is produced, factories slow production and close earlier. The result is that CO2 supplies dry up.

While this is not a significant problem for the fertilizer manufacturers, it is of much more strategic importance to the country’s food security. And, it’s this structural vulnerability that BMPA is seeking to address with Government.

At the moment, the CO2 market is very opaque. Supplies are moved around between countries and companies to the extent that we do not know exactly how much European CO2 the British food industry relies on.

Post Brexit, there is no clear picture of what tariffs and trade barriers the CO2 supply will be subject to. So, we have no way of knowing whether there will be problem, or whether this kind of crisis will become a more regular and enduring feature of the food industry going forward.

What can be done?

In short, the strategic nature of the problem requires a strategic response from Government. Just as the water industry is regulated and monitored closely to avoid public crises, Government should be able to intercede in a more meaningful way to prevent this happening again.

At the moment the British food supply chain is at the mercy of a very small number of CO2 suppliers. Moreover, many of these companies operate in other European countries and are not under the UK’s jurisdiction. It is very difficult to get an overview of the CO 2 supply situation or to be able to ascertain if there are potential problems developing.

To tackle the current crisis BMPA, along with other industry bodies and politicians are lobbying Greg Clarke the Secretary of State for Business, Energy and Industrial Strategy to take a firmer stance with the UK CO2 producers. Nick Allen said: “We urgently need the Secretary of State for Business to convene the big CO2 manufacturers to demand that they coordinate to minimise disruption, and provide information to Britain’s businesses so contingency plans can be made”.

We will get through this current crisis, but the precarious reliance of the British food industry on CO2 must be given proper consideration and innovative solutions must be found to neutralise future threats.