How the CO2 shortage is impacting the food and drink sector

The latest blow to the food and drink supply chain has come in the form of carbon dioxide (CO2) shortages. Spiking gas prices has led to shortfalls of the product, which is used in carbonated drinks and across the frozen food supply chain and the meat industries.

For businesses across retail, farming, hospitality and manufacturing, which are already experiencing shortages of workers and supplies due to Covid-19 and Brexit, it’s yet another challenge to tackle.

While the government has secured a temporary agreement to restart CO2 production and ensure supplies, prices are set to soar, rising from £200 per tonne to £1,000 per tonne.

“This agreement will ensure the many critical industries that rely on a stable supply of CO2 have the resources they require to avoid disruption,” said business secretary Kwasi Kwarteng. However, environment secretary George Eustice added, “This is a short-term intervention to provide the space and time for market adjustment.”

Keith McAvoy, CEO of SEVEN BRO7HERS Brewing Co in Salford said that the CO2 deal “couldn’t have come any sooner” for his business.

However, he added, “It is likely our CO2 costs will increase because of the government investment, which will have direct impact on our margin. The decision has accelerated our plans to carbon capture our own CO2 to make ourselves more independent and self-reliant in times like this,” he explained. “In the brewing process one of the biproducts of the fermenting is the release of CO2. We are exploring different ways to capture this and add it to our reserve. Our goal is to become a carbon negative business.”

The British Meat Processors Association said the deal was a “huge relief” but “complex discussion” was still needed over how to renegotiate and restructure CO2 supplies in the UK – and the wider food and drink supply chain.

“Once this immediate crisis is averted, we will be suggesting that Government, with the help of ours and other sectors, does a comprehensive review of how our modern supply chains have evolved and where vulnerabilities have crept in. This will form the basis of future solutions so we can avoid this situation in the future,” the group said.

Retailers continue to face shortages

While it appears the worst of the CO2 crisis has been averted for the short term, many food retailers are still facing shortages of supplies. In response to the latest data, delivery firm ParcelHero’s head of consumer research, David Jinks, said the situation was “extremely concerning”.

Data from the Office for National Statistics revealed that for the two weeks ending 5th September, 23% of retailers and wholesalers reported lower stock levels than expected, and more than 10% were unable to get some key goods entirely. Transport and storage companies said 20% of businesses either closed entirely or paused trading.

“These ONS figures are bad news for shoppers needing staple goods. Many retailers should now be in their Christmas build-up period, instead of which they are struggling to meet today’s demands for basic items,” David said. “While some goods will be completely out of stock, shoppers may have to switch brands to get other items. 12.5% of shops and wholesalers say they have had to ditch their normal suppliers of some products and find alternative sources because they can’t get deliveries. This will have an impact on prices and the choice of products available in store.”

Tesco has voiced concern about the industry’s challenges in the run-up to Christmas, saying that panic buying could occur again if the crisis is not addressed. “Our concern is that the pictures of empty shelves will get ten times worse by Christmas, and then we’ll get panic buying,” Tesco’s UK distribution and fulfilment director, Andrew Woolfenden, said during a Cabinet Office meeting.

Tesco said recruiting drivers remains a challenge, and the retailer has joined calls from across the food industry to make it easier to recruit staff from abroad. The food and drink sector recently came together with a cross-industry report that revealed workforce vacancies are at an average rate of 13% for businesses, with more than 500,000 total vacancies, due to the impact of the pandemic and the UK’s post-Brexit immigration policy. Groups including the NFU and the FDF have called for a Covid Recovery Visa to fill the gap in the short term.

Independent brands are also feeling the bite of shortages. SEVEN BRO7HERS’ Keith said, “Currently every part of the production and supply chain process is being squeezed. We have been impacted by lack of carboard supplies and the access to raw ingredient to make the beer. We have faced challenges meeting deadlines with customers, due to the shortage of HGV drivers effecting our suppliers. Challenges we don’t need coming out of Covid-19.”

However, for the most part, larger retailers with more complex supply chains have been much more badly hit than smaller independent retailers. In the weeks and months to come, if fine food retailers can continue providing fully stocked shelves, they could see a bumper Christmas period.

Is your business impacted by shortages? Get in touch with courtney.goldsmith@aceville.co.uk