UK food producers, including Cranswick PLC (LSE:CWK) and Hilton Food PLC (LSE:HFG), will see the price of CO2 rise 500% as the government agreed a deal to avert a shortage of turkeys for Christmas and other meat.
Environment Secretary George Eustice said prices for carbon dioxide will jump to GBP1,000 per tonne from GBP200 as part of the deal agreed with US company CF Industries.
CF, which is Britain’s largest CO2 supplier, was one of several suppliers to cut production as a result of rising natural gas prices. CF supplies the gas as a byproduct of its fertiliser production but closed two of its plants in northern England last week.
CO2 is used to stun animals before slaughter, by supermarkets in chilled food deliveries as well as in fizzy drinks and beer.
Giving more details about the deal agreed on Tuesday, the government has agreed to pay “many millions, possibly tens of millions” to Chicago-based CF Industries to reopen its UK plants, said Eustice.
“We need the market to adjust, the food industry knows there’s going to be a sharp rise in the cost of carbon dioxide,” he told Sky News.
Cranswick and other meat producers had warned that the shortages of CO2 and labour could halt production throughout the supply chain ahead of Christmas.
Food and grocery analyst Clive Black at Shore Capital said there was “an immense sense of relief throughout much of the British food chain” after the deal was agreed but there was also anger at how it had been allowed to happen.
“How such a position of immense stress, particularly for the domestic intensive livestock sector, where C02 is central to making the slaughter of animals as comfortable as possible, is a wider policy debating matter, but in truth not one that covers government nor the civil service in glory, especially around the wisdom or otherwise of gas storage provision.”
He said with the C02 crisis averted, the food industry still faces wider challenges relating to the labour market, with shortages in the British food system from produce and farm pickers to lorry drivers.