Why food shortages could strike again

A deal that ensured carbon dioxide (CO2) supplies for the food and drink industry came to an end in January, and despite a new agreement the food and drink industry is calling for further details “urgently”.

Late last year, the Government agreed to subsidise CO2 producer CF Industries, which supplies 60% of the UK’s food-grade CO2, after its shutdown led to fears over UK food supplies. CO2 is not only used in fizzy drinks, but also in keeping packaged food fresh and in meat production.

The Government confirmed a new deal with CO2 supplier CF Industries. “The deal will enable CF Fertilisers’ Billingham plant to continue to operate while global gas prices remain high. It means key sectors, including food processing and nuclear power, are ensured supplies of CO2,” Beis said in a statement.

“In the longer term, the government would like to see the market take measures to improve resilience, and we are engaging on ways this could happen.”

“UK food and drink manufacturers welcome the deal that will ensure continuity of CO2 supply, keeping our shops, pubs and restaurants stocked with our favourite food and drink,” said Kate Halliwell, chief scientific officer at the Food and Drink Federation.

However, there is still uncertainty about what the deal will mean for CO2 prices. Emma McClarkin, the chief executive of the British Beer and Pub Association, said, “We are encouraged by the agreement made between suppliers and CF industries, however we urgently need further details on the nature of the arrangement in order to understand the impact on our sector and the longer term sustainability of CO2 supply for the UK drinks sector.

“Our sector is still reeling from the impact of a devastating winter and face rising cost pressures from all angles. A swift resolution to the CO2 supply issue is crucial in ensuring a strong and sustainable recovery for the beer and pub sector.”

Why could food shortages return?

It all comes back to the rising cost of wholesale gas. CF Industries, which produces fertiliser as well as CO2, shut down last year after gas prices shot up, making its business unsustainable. With energy prices still high – and threats of conflict between Russia and Ukraine meaning they could go even higher – further CO2 shortages could be on the horizon.

Last year, the British Meat Processors Association (BMPA) said the Government’s deal with CF Industries was a “huge relief”, but the group stressed that there would need to be “complex discussion on how to renegotiate and restructure CO2 supply and pricing in the UK” after the immediate crisis was over.

The BMPA has said more talks are needed. “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,” the group said.

“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,” the BMPA said.

However, the group added, “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 some independents, the CO2 crisis has driven forward plans to move away from a reliance on the larger producers. Keith McAvoy, CEO of SEVEN BRO7HERS Brewing Co in Salford, told Speciality Food that the Government intervention and resulting rising in CO2 costs accelerated a plan to carbon capture the business’s own CO2. 

“In the brewing process one of the by-products of the fermenting is the release of CO2. We are exploring different ways to capture this and add it to our reserve. Our goal is to become a carbon negative business,” he said.

With possible shortages or price increases on the horizon, indies that can take control of their supply chains and move away from centralised systems only stand to benefit.