UK firms reach deal over CO2 supply chain shortages | Supply chain crisis

Businesses involved in channelling crucial carbon dioxide supplies to the food and drink industry have struck a deal aimed at averting shortages of products such as meat and fizzy drinks until January next year.

The government was last month forced to provide a temporary bailout to CF Fertilisers, which accounts for 60% of the UK’s CO2 supplies, to counter the looming threat of chaos in supply chains.

CO2 is a vital product for the slaughter of animals and packaging of fizzy drinks, including beer, as well as for the production of dry ice to keep products fresh.

That supply chain was at risk after CF Fertiliser, owned by a private firm in the US, shut two plants, in Billingham on Teesside and Ince in Cheshire, due to unprecedented Europe-wide rises in the cost of the natural gas it uses to power its operations.

On Monday, the Department of Business, Energy and Industrial Strategy (BEIS) said it had brokered a more lasting agreement to replace a three-week funding package, under which the state propped up the company to keep CO2 supplies flowing.

BEIS said customers of CF Fertiliser had agreed to pay a set price for the gas until at least January 2022, in a deal the department said reflected the importance of CO2 not just in food and drink but also in areas such as the nuclear industry and hospitals.

Business secretary Kwasi Kwarteng temporarily exempted parts of the CO2 industry from competition law to allow the price-fixing agreement to go ahead, a decision he said had given “breathing space to agree a longer-term, more sustainable solution”.

Kwarteng, who has been at odds with the Treasury over how much support the government is prepared to offer heavy industrial users hit by the gas price surge, said the new CO2 deal delivered “value for money for the taxpayer”.

CO2 is a major by-product of ammonia production in the fertiliser industry, meaning several significant industries that use the gas, including the UK food and drink supply chain, are heavily reliant on steady output from a limited number of fertiliser firms.

When soaring gas prices led to CF Fertilisers shutting down the two plants, it raised concerns that supermarkets would run out of products such as beer and meat. Farmers warned that more than 100,000 pigs would have to be culled.

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The government responded by taking the unusual step of bailing out a privately owned company, a decision the environment secretary George Eustice admitted could cost “tens of millions”.

He said the government had no choice if it wanted to avoid disruption to food supply chains.

BEIS said on Monday that a third fertiliser plant, owned by Ensus in Wilton, Teesside, had reopened last week. The plant can satisfy up to 40% of the UK’s CO2 demand.