Yahoo Finance Christmas dinner to cost more amid CO2 crisis, warns meat industry
Meat producers have warned of spiralling prices this Christmas triggered by a surge in the cost of carbon dioxide after a rescue deal was struck to protect the flow of the vital gas.
Industry leaders are bracing for a possible fivefold spike in the cost of CO2 - essential in the production of pork, turkey and chicken - following an agreement to keep manufacturing plants owned by CF Industries running over winter.
The Exchequer has been bankrolling CF for the last three weeks to keep production going after surging wholesale gas prices made it uneconomic.
Ministers have now brokered a longer-term deal between CF and the middlemen which it supplies, allowing the plant to charge significantly more for CO2 in coming months.
Meat producers which then buy the gas from these middlemen fear they will be forced to bear the extra costs – potentially giving them no choice other than to put up their own prices, ultimately hitting consumers in the pocket.
Industry sources said that there was speculation that CO2 prices could jump from £200 to as much as £1,000 a tonne.
The British Meat Processors Association said: "The industry has been given no detail on what the price will be or how it will be calculated going forward.
"We understand that Business Secretary Kwasi Kwarteng took the decision to temporarily exempt parts of the CO2 industry from competition law to facilitate this agreement.
"What we need now is some detail and transparency around how the new pricing structure will work."
Meat companies spoke to officials at the Department for Environment, Food and Rural Affairs on Monday night but sources said they struggled to secure details about the nature of the deal with American-owned CF.
Ian Wright, chief executive of the Food and Drink Federation, said: “Although welcome news, the increased cost of buying CO2 is yet another burden on the food and drink industry, which is already facing enormous stresses. This will of course add more pressure on prices for shoppers and diners.”
CF makes fertiliser and produces roughly 60pc of the UK’s CO2 as a byproduct. This is then used in the slaughter of animals as well as to preserve food, carbonate drinks and cool nuclear reactors.
Ministers are hopeful that the reopening of a plant run by Ensus in Wilton, Teesside, will increase supply and reduce prices. In addition, CO2 imports are due to start flowing from sites in Norway that have been shut for planned maintenance.
But senior industry insiders fear that yesterday’s announcement does not address the industry's dependency on a small number of CO2 producers which are in turn at the mercy of gas prices.
A source said: “We have eight weeks to sort out the long-term solution."
Because meat producers require CO2 that is 99.9pc purity, they are unable to stockpile the gas, which has a shelf life of roughly six weeks. The higher grade and large volumes mean it represents a proportionally higher amount of the industry’s input costs.
Another industry source warned that the combined impact of higher CO2 prices, labour shortages and rising transport costs is likely to force producers to consider putting up their costs.
George Eustice, Environment Secretary, said: “CO2 is vital for our food and drink sectors. The Government has taken decisive action in these exceptional circumstances to allow a deal to be reached which will continue the supply of CO2 to businesses – including thousands of food and drink businesses – up and down the country.”
The announcement raised eyebrows among nuclear bosses. Industry sources said that EDF, which runs the UK’s nuclear energy plants, was not part of the talks and is sitting on up to 18 months of CO2 supplies.
Kwasi Kwarteng, Business Secretary, said: “[The] agreement means that critical industries can have confidence in their supplies of CO2 over the coming months without further taxpayer support.”
Mr Wright added: “We continue to work with the Government to ensure supply continues. Once we are certain that the immediate supply issues are resolved, we will then turn our attention to the need to build resilience into the production of CO2 to protect our food and drink supply chain.”
Ensus sells its CO2 onto supplier Nippon, which then sells it into the food and drinks industry.
Grant Pearson, commercial director, said: "The Ensus plant has now restarted following its annual maintenance overhaul and as a result is helping to alleviate the carbon dioxide supply chain situation (carbon dioxide being one of the bi-products of their process).
"The business has not received any financial support from the Government. Like other firms reliant directly or indirectly on gas as a feedstock raw material, Ensus continues to watch the gas price situation very closely."
