Food prices rising over CO2 shortage as supply deal covers just three weeks

ITV News Correspondent Rachel Younger reports on the temporary deal agreed between the government and the country's biggest CO2 producer

Food prices are rising over CO2 shortages in the UK, the environment secretary has admitted, with a new deal to restart production only set to only cover the next three weeks.

A lack of CO2, essential in food and drink production, means "food prices are starting to rise again", George Eustice told ITV News but he suggested the situation would be much worse had the government not intervened to resume production from one of its biggest CO2 suppliers.

A multi-million pound deal was signed with CF Fertilisers last night, to provide “limited financial support” for its operating costs to allow production of the gas to to resume while the global market adjusts.

Had that not happened, Mr Eustice claimed, "we would have had a shortage and problem with availability of CO2 as early as next week - that would have cause major disruption to poultry and pig supply in particular in this country".

Environment secretary - 'Food price inflation is already happening':

The UK finds itself in a difficult position following Brexit and as it comes out of the coronavirus pandemic, the government is battling various shortages which are causing prices to rise in numerous sectors.

"We've got challenges on shipping, we're seeing spikes in demand for gas - particularly in Asia - that's causing the increase in gas prices, labour shortages in parts of the economy and also some issues on logistics," the environment secretary told ITV News.

He admitted the combination of issues are "putting some pressure" on food supply chains but insisted they are "resilient" and firms are "managing to keep food on the shelves".

Mr Eustice accepted some supermarket bosses are correct in their claims that supply issues will drive up food prices.

"Food price inflation is already happening," he said, but costs "are rising from a very low base" with household expenditure on food "the lowest on record".

What do we know about the deal so far?

US-owned CF Fertilisers produces around 60% of UK’s CO2, used primarily by the food sector, and its deal with the government is expected to cost tens of millions of pounds to the taxpayer.

The government is hoping the three week deal will allow time for contracts to be renegotiated and the price of CO2 to increase significantly - that will then give the market signal to [other CO2] factories that they should continue to manufacture.

The Department for Business, Energy and Industrial Strategy said the “exceptional short-term arrangement” with CF Fertilisers would allow the company to immediately restart operations and produce CO2 at its Billingham plant in Teesside.

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.

“The quick and decisive action we have taken to resolve the issue shows the seriousness with which we have approached it.

“In our ongoing response to manage the impact of global gas price rises, we will continue to protect businesses and consumers.”

CF Industries last week said it stopped work at its fertiliser plants at Billingham in Teesside and Ince in Cheshire due to rising gas prices.

The news led to a CO2 shortage that threatened the food and drink industry.

CO2 is used in fizzy drinks, for packaging raw meat to make it last longer and to stun animals before slaughter.

Producers warned that supplies of meat, poultry and fizzy drinks could all be hit due to the shortage.

Using CO2 to stun animals is seen as a humane way of killing them.

But the National Pig Association (NPA) had warned that farmers will have to cull pigs on farms if the shortage continued.

The UK had been days away from British meat disappearing from supermarket shelves, Nick Allen, chief executive of the British Meat Processors Association had said.

He said 80% of pigs and poultry are slaughtered using CO2.

Why is there a shortage in CO2?

CF Industries closed two of its fertiliser plants due to a surge in gas prices.

This surge in cost is the result of depleted stocks following a cold winter last winter, reduced supply from Russia, and increased demand for liquefied natural gas from the Far East.

OGUK, which represents the nation’s offshore oil and gas industry, said wholesale prices for gas have surged 250% since January with a 70% rise since August alone.

Dermot Nolan, a former Ofgem chief executive, has warned that Britain is likely to face high energy prices for the rest of the year.