BMPA response to Government’s deal with key Co2 supplier

Yesterday’s announcement that the Government has secured a deal with CF Industries to reopen one of their fertiliser plants comes as a huge relief in the short term and will allow meat producers to continue their operations beyond next week. BMPA has consulted closely over the last few days with Government and we’ve been impressed by the swift and dedicated action of ministers and their teams in stepping in to work out this emergency plan.

But, we do not underestimate the challenge that faces us over the next three weeks. If we are to return to a normal functioning of the Co2 market, there will need to be some complex discussion on how to re-negotiate and restructure Co2 supply and pricing in the UK.

Over many years, we have had a major consolidation of the industry resulting in sectors like food and drink, nuclear and health being reliant on a very small number of very large suppliers. If a market-based solution is to be found, it will likely involve longer-term higher prices for Co2 which will be sustainable

Because Co2 is traded internationally. The risk is that price shifts here could prompt price distortion in other markets.for some but not all users of the gas.

Another consideration over the next three weeks is that, whatever gets negotiated here in the UK will also have international implications, because Co2 is traded internationally. The risk is that price shifts here could prompt price distortion in other markets.

On the flip side, a re-setting of the Co2 market and pricing structure may prompt new Co2 suppliers to enter the market. There are a number of companies that produce Co2 as a by product but, as yet, don’t capture and sell it. A significant price rise may make this viable and also dissipate the effect of consolidation in the industry.

For now, we are focused on re-establishing supplies before Friday this week which is when around 25% of pork production was in danger of shutting down. We understand that it will take around three days to get the Teeside plant back up and running which should be just in time.

After that, we have some important work to do to discuss how these markets can be re-shaped to take the risk out of our supply chains. Part of that discussion will involve the kind of consolidation that’s taken place, not just in the Co2 market but elsewhere in the supply chain, for example the shipping container sector. We’ve had some warning shocks recently that have exposed weaknesses. We should now look to identify those weaknesses and act to fix them.

Once this immediate crisis is averted, we will be suggesting that Government, with the help of ours and other sectors, does a comprehensive review of how our modern supply chains have evolved and where vulnerabilities have crept in. This will form the basis of future solutions so we can avoid this situation in the future.