Piggybacking fertiliser production to source a by-product on the cheap makes huge economic sense. Trouble is, when it’s as critical to the food industry supply chain as CO2, and supply is dominated by a handful of players who can turn off production at a stroke, economics go out the window.
That’s what happened in the blistering summer of 2018. And for different reasons it’s happened again, with CF Industries switching off supply without warning due to high gas prices.
With 60% of the market for UK food-grade CO2, it’s remarkable to think CF Industries could destabilise food supply in a way that neither covid nor Brexit had thus far managed: hence the government bailing the food industry out. That was not CF’s express purpose, but its behaviour, switching off supply without any discussion, has infuriated the food industry, all the more so since the justification for not negotiating when gas prices were low was blamed on long-term contracts.
But when you’re that reliant on a marginal cost, it’s no longer marginal. Although the Competition & Markets Authority has been asked to monitor gas prices, to make sure they don’t get further out of hand (the cost of CO2 has risen from £50/tonne to £1,000/tonne), the industry will need to cough up, paying higher prices for the foreseeable and investing in extra storage.
These extra costs are not prohibitive, though they all add to the upward inflationary curve. More damaging even than inflation, however, is the threat to continuity of supply. Of course, in due course, and with higher prices, more CO2 suppliers will emerge. Carbon capture, originally seen as a way to fight climate change, may yet be used as a security, too. Alternative technologies are also available. After the last CO2 crisis, Campden BRI tried to launch a study into using nitrogen as an alternative packaging gas. While no one was interested at the time, one suspects it may get a different reception if it tries again now.
Meanwhile, production must restart quickly if disruption is to be averted. And let’s not forget there is still another cliff edge in just three weeks.
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