Food Industry Welcomes Agreement to Restart CO2 Production, But Says There Will Always Be Shortages | Economic news
The food industry has hailed a deal to resume carbon dioxide production at two key UK sites – but warned there would still be supply shortages.
CF Industries has agreed to restart fertilizer factories at Billingham on Teesside and Ince in Cheshire following discussions with Business Secretary Kwasi Kwarteng.
The closure of the sites by the American firm Last week, blamed on soaring gas prices, had threatened crisis in the food industry and pressure ministers to act.
This is because CO2 – a by-product of the manufacturing process in factories – plays a critical role in the stunning of poultry and pigs for slaughter and in vacuum packaging.
Norwegian company Yara also said it was cutting production at ammonia plants across Europe, including one in Hull.
This prompted warnings that buyers might start to notice shortages of poultry, pork and baked goods within days.
The Food and Drink Federation, representing the manufacturers, welcomed the agreement to resume CO2 production, although it said it did not yet have the details.
FDF Managing Director Ian Wright said: “If production can restart at an appropriate scale before the end of the week, that should be enough to ensure that pig and poultry production can continue at a near level. from normal.
“There will be shortages, but these will not be as severe as previously feared.”
The deal came as the the prime minister told Sky News the energy crisis was a “short-term problem” and said he did not think there would be a disruption of food supplies on Christmas.
Soaring gas prices are also having a big impact on domestic energy providers – two smaller players who closed their doors last week.
Sky News revealed on Tuesday that another company, Green, had Insolvency advisers aligned.
The government has made it clear that it will not offer a bailout to companies that go bankrupt.
But the crisis could lead to state guaranteed loans being offered to the largest suppliers, who will have to pick up the pieces by attacking their customers.
Purchase of gas on the wholesale market for all households concerned – which could number in the millions – will prove to be costly at current inflated prices.
Analysis by Paul Kelso, business correspondent
CF Industries’ CO2 Production Cost Guarantee Agreement is a quick fix to an urgent problem that has exposed weak UK supply chains to critical sectors including food supply, civilian nuclear power and medication.
With the consequences of continuing shortages likely to be severe and rapid – from empty shelves and unreformed chickens to batches of vaccine deteriorating in transit – Business Secretary Kwasi Kwarteng probably had no choice but to make a deal. OK.
The fact that it took two meetings with CF Industries CEO Tony Wall suggests he got a high price for it. It should be remembered that the company only produces CO2 as a by-product of its fertilizer production, an activity which will now resume with the energy costs which made it unprofitable and borne by the taxpayer.
Sources insist that the government has agreed to cover CF’s energy bills, using a letter of indemnity against additional energy costs, only for a capped period of “a certain number of weeks”, and only because of the threat to critical industries.
This will depend on how long gas prices remain prohibitive. If the peak turns into a plateau and an alternate source for 60% of the UK’s CO2 cannot be identified, it may start to look like a blank check.
Longer term, ministers should be concerned about the UK’s reliance on a supply chain where one company can potentially shut down multiple industries after the fact.
The related CO2 supply crisis follows a previous shortage in 2018 – and the meat industry had expressed fears that the latest one could be worse.
He said the product plays a “critical and irreplaceable role in the food and beverage manufacturing process.”
The food industry is already grappling with other big supply chain challenges created by Brexit and the pandemic, including a shortage of 100,000 truck drivers and a lack of workers at processing plants across the country. meat.
Andrew Opie, director of food and sustainability at the British Retail Consortium, welcomed the announcement of an “agreement to bring CO2 production back to normal levels”.
“By taking decisive action on this important issue, the government will help prevent availability issues resulting from CO2 shortages,” Opie said.
“It is vital that production at the Cheshire and Stockton-on-Tees factories resumes as soon as possible, and distributed quickly to food manufacturers who need it.
“To support this, and other supply chain issues that have arisen in recent weeks, the government must also find a solution to the shortage of truck drivers.”
The British Meat Processors’ Association said it would meet with the government later, but had not yet been made aware of the details of the deal and when production would resume.
Richard Griffiths, managing director of the British Poultry Council, also welcomed the move, but said he “expects Defra to facilitate how it will work in practice”.
“This is just the start of a long road to go,” Griffiths said.
“This episode demonstrated the importance of CO2 in British poultry production, to avoid both bird welfare and supply problems.
“The entire poultry meat industry is working tirelessly to avoid food shortages or the worst-case scenario of empty supermarket shelves.”
Zoe Davies, chief executive of the National Pig Association, said: “We are obviously very relieved that a resolution has been found, but we still don’t know at what cost – we don’t yet know the details of the deal that has been concluded, but I hope it does not resort to exorbitant CO2 prices (as we suspect). “