Energy problems highlight food supply chain fears

Illinois-based CF Fertilisers produces around 60 percent of UK’s CO2, used primarily by the food sector, but also in other industries such as healthcare.

Announcing the multi-million pound deal, the UK’s Business Secretary Kwasi Kwarteng said: "This agreement will ensure the many critical industries that rely on a stable supply of CO2 have the resources they require to avoid disruption.”

However, while welcoming the government intervention, processors in the meat and other food sectors said that complex discussion on how to re-negotiate and restructure CO2 supply and pricing in the UK still lay ahead.

“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,” said Nick Allen, chief executive officer of the British Meat Processors Association.

On the CO2 issue, he said that if a market-based solution was to be found, it was likely to involve longer-term higher prices for Co2 – but added that as CO2 was traded internationally the risk was that price shifts could promote trade distortion in other markets.

However, the sector also admitted that on the flip side, a re-setting of the Co2 market and pricing structure could prompt new Co2 suppliers to enter the market as a number of companies that produce CO2 as a by product currently don’t capture and sell it.

And a significant price rise could make capture more viable and also dissipate the effect of consolidation in the industry. But while the food sector remained focused on re-establishing supplies before the end of the week, when around 25 per cent of pork production was in danger of shutting down, it also warned that once the immediate short-term problem was sorted out, important discussions lay ahead.

Suppliers must work out how the entire supply chain could be made more resilient and less vulnerable at pinch points, which had crept into the supply chain.

“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,” said Allen.

“We’ve had some warning shocks recently that have exposed weaknesses. We should now look to identify those weaknesses and act to fix them.”

English NFU president, Minette Batters also said that recent days had highlighted starkly the fragility in the supply chain.

“It is something government must not take for granted and I want us to use this moment to ensure we all understand what’s at stake.”