Gas prices in the UK could trigger food shortages within weeks

By Hanna Ziady, CNN Business

UK supermarkets could face shortages of meat and other fresh food within weeks after soaring gas prices prompted a major US fertilizer manufacturer to suspend production, turning off most of Britain’s supply of carbon dioxide to the food and drink industry in the process.

Illinois-based CF Industries said last week that it would halt operations indefinitely at its two UK plants because of the high price of natural gas.

Those plants supply 60% of the United Kingdom’s food-grade CO2 as a byproduct of fertilizer production, according to the British Meat Processors Association (BMPA), which warned on Friday that the supply shock could cause food shortages within 14 days once current stocks of CO2 gas run out.

The gas is used to stun animals for slaughter, as well as in packaging to extend the shelf life of fresh, chilled and baked goods, and in the production of carbonated drinks.

BMPA CEO Nick Allen told the BBC on Saturday that he has been “inundated” with calls since the factories shut. “Retailers are really concerned about it,” he added.

“This crisis highlights the fact that the British food supply chain is at the mercy of a small number of major fertilizer producers (four or five companies) spread across northern Europe,” Allen said in a statement.

Underscoring the pressure on the industry, another European fertilizer producer, Norway’s Yara, said Friday that it was cutting its production of ammonia in Europe by around 40% — including at a UK plant — because of the “record high natural gas prices.”

“Right now, it’s unprofitable to produce ammonia in Europe,” Yara CEO Svein Tore Holsether told CNN Business on Monday. He said the company, which is monitoring the situation daily, would temporarily rely on ammonia production in other parts of the world. Yara’s Hull plant does not produce CO2.

The British Retail Consortium on Monday called on the UK government to ensure adequate supplies of CO2 for food producers and “avoid significant disruption to food supplies.”

UK Business Secretary Kwasi Kwarteng met the CEO of CF Industries, Tony Will, on Sunday to discuss the crisis. “We discussed the pressures the business is facing and explored possible ways forward to secure vital supplies, including to our food and energy industries,” Kwarteng tweeted.

The UK government official was also due to meet energy industry bosses on Monday amid rising fears that many gas and power suppliers could go bankrupt as wholesale prices surge, leaving business and retail customers without a reliable supply.

A government spokesperson told CNN Business on Monday that officials were monitoring the situation closely and maintaining regular contact with food and farming organizations.

The looming CO2 shortage comes at a difficult time for UK food producers, which are already contending with an acute shortage of truck drivers and snarled supply chains. The British Poultry Council warned on Friday of a threat to national food security if CO2 production is not supported by government in the run up to Christmas.

“With fewer than 100 days to go until Christmas, and already facing mounting labor shortages, the last thing British poultry production needs is more pressure,” British Poultry Council CEO Richard Griffiths said in a statement.

“This is no longer about whether Christmas will be okay, it’s about keeping the wheels turning and the lights on so that we can actually get to Christmas,” Richard Walker, managing director of supermarket chain Iceland Foods, told the BBC on Monday. “This is not an issue that’s months away.”

UK natural gas prices jumped 420% on an annual basis in September, according to S&P Global Platts. Prices for gas are also rising sharply elsewhere in Europe, due to depleted stocks, competition with Asia for liquified natural gas and low supplies from Russia.

But the problem is particularly acute in the United Kingdom, where the supply crunch has been exacerbated by a lack of large storage facilities and significantly lower UK production this year due to a heavy schedule of planned maintenance and delays to new projects, S&P Global Platts said in a research note last week.

— Julia Horowitz contributed reporting.

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