Food producers warn surge in cost of CO2 will force up prices for shoppers | Energy industry

Food producers have warned a surge in the price of carbon dioxide will force up prices for shoppers despite the government agreeing to spend millions of pounds on bailing out a private US firm that supplies gas to the industry.

George Eustice, the environment secretary, said financial support would be available for three weeks to restart production at the Teesside factory of CF Fertilisers, a company that supplies food-grade CO2 as a byproduct to food and packaging firms.

He admitted in an interview with Sky News that the price of CO2 was likely to rise four-fold to £1,000 a tonne as CF signed new contracts with its clients over the next few weeks to support on-going production.

Eustice insisted the move would not raise food prices because carbon dioxide is only a small part of producers’ costs but food producers said the rise would add to other inflationary pressures including commodity price rises and staff shortages.

Richard Griffiths, the chief executive of the British Poultry Council, said the deal was a “great relief” for the industry as it was only days away from running out of CO2, which is used in the slaughter of birds. He said: “CO2 [supply] was an urgent thing to solve but it is another element on the cost of production that will ultimately feed through to food prices.”

Nick Allen, of the British Meat Processors Association, said that negotiating new, more costly, deals over the next three weeks, which would ensure CF continued production beyond the period supported by the government, was going to be a “tight deadline”. He said higher prices were likely to lead to a restructuring of the CO2 industry as potential profits attracted other businesses to harvest and sell the gas.

Allen said there were fears that a rise in the price of CO2 would have an impact on food prices. While that was likely to be minimal on pork, where CO2 costs make up less than 1% of the price of a pig carcass, he said it was likely to have a bigger impact on some other food stuffs.

Soft drinks producers also raised fears about costs with Gavin Partington, director general of the British Soft Drinks Association, saying that supplies may not be as “abundant as usual” as it could take up to a fortnight for the restart of CF’s plant to have an impact on the industry. He added that some members had been quoted over £1,000 a tonne for imported CO2 this week.

“We welcome government intervention in getting the CF Fertilisers plant back online to help ease these immediate pressures, but we reiterate our call for longer-term support to prevent such market disruption,” Partington said.

Pressed on the squeeze on household bills from the universal credit cut, higher energy bills, the national insurance rise and inflation, Eustice echoed the prime minister’s insistence that people would be able to cope because of higher wages.

However, Labour has warned that working families face a squeeze on living standards “on a scale not seen for a generation” because the Conservatives had “left issues to fester”.

Food suppliers need carbon dioxide for meat production and packaging of fresh foods, but high gas prices had made it uneconomic for CF Fertilisers to operate its sites in Teesside and Cheshire. It supplies about 60% of the CO2 that the UK needs for food production, with the gas also used for other purposes, such as cooling nuclear reactors and making dry ice to keep goods cool for transportation.

Some key fertiliser plants in Europe, where 20% of the UK’s CO2 supplies come from, have also closed down for planned maintenance this week adding to inflationary pressure.

The prime minister’s official spokesperson admitted he could not put a number on how much cash would be needed by CF Fertilisers over the next three weeks because its operating costs are not fixed.

He said the final figure will be published at some unspecified point in the future under “transparency requirements”, but remain a secret until then because it was “commercially sensitive”.

He denied the government had written a blank cheque to CF Fertilisers, saying a cap had been set. But the spokesperson did not rule out the deal being extended and more taxpayer cash being committed after three weeks if the situation was not resolved.

Earlier, Eustice revealed to Sky News that the cost was likely to be “many millions, possibly tens of millions”.

Challenged on why the UK taxpayer was bailing out a private US firm, Eustice said: “The reason why it is justified for the government is … if we didn’t, there would be a risk to the food supply chain. It’s not a risk the government is willing to take.”