CO2 Shortage Puts Beer Supplies In Danger Until September
Breweries across northern Europe are fretting about shortages of beer. Here's why.
(Bloomberg) -- Breweries across northern Europe are fretting about shortages of beer, slaughterhouses face the threat of shutdown and U.K. consumers may find it harder to buy a popular breakfast food.
And it’s all because of a shortage of carbon dioxide on the continent.
The gas, which gives soda its fizz and is used to package food, and even stun pigs before slaughter, is in short supply due to a high number of closures at ammonia plants that produce CO2. That’s putting pressure on food and drink industries just as warm weather, soccer’s World Cup and the holiday season typically boost demand for fizzy drinks, beer and barbecue meat.
“There is a serious concern that consumers may face a limited choice of food and drink on supermarket shelves if a normal supply of CO2 is not restored as quickly as possible,” said Ian Wright, chief executive of the U.K.’s Food and Drink Federation.
Carbon dioxide, often associated with global warming, is a byproduct of ammonia produced by the fertilizer industry. When puffed into packaging, it helps prolong the shelf life of meat or salads, and is also used in dry ice, which helps transport frozen goods. The shortage has been caused by too many ammonia plants closing down for planned maintenance or production issues.
Gas Shortage
It could be September before more ammonia comes back to the market, and with it CO2, according to CRU’s Fertilizer Week publication. A supply squeeze for another three or four weeks may cause more considerable problems for the food and drink industry, Berenberg Bank analysts said last week.
Northwest Europe has been particularly affected. Norway’s Aass Brewery halted operations and German brewer Radeberger Gruppe AG has been forced to carefully manage gas supplies, while others have also warned of low CO2 supplies. The city of Oslo has even restricted watering of gardens due to the shortage of the gas used by utilities to treat water.
"It’s quite unprecedented and quite unique," said Francois Sonneville, a beverages analyst at Rabobank in London. It’s becoming harder for the beer industry to deal with the shortage and brewers may start to limit output of brands that yield lower margins, he said.
The U.K., which imports the majority of the CO2 it uses, has been among the hardest hit. Coca-Cola European Partners Plc temporarily paused some production lines, while online supermarket Ocado Group Plc was forced to limit deliveries of some frozen items. Warburtons, a family baking business that uses the gas in packaging, cut back on production of crumpets, a pancake-like griddle cake often eaten in Britain.
Still, the shortage is probably temporary and shouldn’t have any material impact on the performance of credit-rated companies including Carlsberg A/S, Anheuser-Busch InBev NV or Coca-Cola European Partners, Fitch Ratings Ltd. said in a note. JD Wetherspoon Plc, a U.K. pub chain that was forced to stop serving some drinks, said the problem is almost resolved.
The crisis could cause potential problems for farmers if they can’t sell their produce, the U.K.’s National Farmers’ Union said. Reduced slaughtering capacity could force more pigs to be moved to other plants, or for birds to be held on farms for longer, industry groups have warned.
Some chicken processors have resorted to electrical stunning and some meat producers switched to other gases or using a vacuum to package their products.
“No one anticipated this at all,” said Nick Allen, CEO of the British Meat Processors Association. “We have got some plants that certainly if they can’t get more gas supply this week, they will actually be having to close down."
Critical Element
While a U.K. ammonia plant was expected to restart this week, meat factories are expected to face problems over the next few weeks until gas supplies are fully restored, the U.K. meat-processing group said.
“Now everyone’s realized just how critical a part of your supply chain it is," Allen said. “We thought the problem on the planet was that we have too much CO2. Now we’ve discovered we haven’t got enough.”
--With assistance from William Wilkes, Manisha Jha, Jonas Bergman and Stephen Treloar.
To contact the reporter on this story: Agnieszka de Sousa in London at atroszkiewic@bloomberg.net
To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Dylan Griffiths, Nicholas Larkin
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