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* CO2 prices will rise sharply, minister says
* UK pays fertiliser maker CF to reopen plants
* Poultry plants would have closed, Britain says
* Iceland says 3-week deal will not save Christmas
* Poultry industry says turkey production will still fall
(Adds Marks & Spencer comment)
By Guy Faulconbridge, Kate Holton and James Davey
LONDON, Sept 22 (Reuters) - Britain warned its food
producers on Wednesday to prepare for a 400% rise in carbon
dioxide prices after extending emergency state support to avert
a shortage of poultry and meat triggered by soaring costs of
wholesale natural gas.
Natural gas prices have spiked this year as economies
reopened from COVID-19 lockdowns and high demand for liquefied
natural gas in Asia pushed down supplies to Europe, sending
shockwaves through industries reliant on the energy source.
Carbon dioxide (CO2) is a by-product of the fertilizer
industry - Britain's main source of CO2 - where natural gas is
the biggest input cost. Industrial gas companies, including
Linde, Air Liquide and Air Products and
Chemicals, get their CO2 mainly from fertilizer plants.
The natural gas price surge has forced some fertilizer
plants to shut in recent weeks, leading to a shortage of CO2
used to put the fizz into beer and sodas and stun poultry and
pigs before slaughter.
As CO2 stocks dwindled, Britain struck a deal with U.S.
company CF Industries, which supplies some 60% of
Britain's CO2, to restart production at two plants which were
shut because they had become unprofitable due to the gas price
rise.
"We need the market to adjust, the food industry knows
there's going to be a sharp rise in the cost of carbon dioxide,"
Environment Secretary George Eustice told Sky News.
It would have to accept that the price of CO2 would rise
sharply, to around 1,000 pounds ($1,365) a tonne from 200 pounds
a tonne, Eustice said, adding: "So a big, sharp rise."
The three-week support for CF would cost "many millions,
possibly tens of millions but it's to underpin some of those
fixed costs," Eustice said.
A spokesperson for Prime Minister Boris Johnson said the
government was giving CF the difference between its total
production costs and what it receives from the sale of CO2.
Business Secretary Kwasi Kwarteng, who also serves as energy
minister, told lawmakers he was confident the country could also
secure other sources of the gas.
It was not immediately clear how the state intervention by
one of Europe's most traditionally laissez-faire governments
would affect the price of fertilizer - another key cost for food
producers - and whether or not it would stoke demands from other
energy-heavy industries for similar state support.
CHRISTMAS SHORTAGES?
Ministers, including Johnson, have repeatedly brushed aside
suggestions there could be shortages of traditional Christmas
fare such as roast turkey, though some suppliers have warned of
them.
Kwarteng has said there would be no return to the 1970s when
Britain was plagued by power cuts that made the economy the
"sick man of Europe", with three-day working weeks and people
unable to heat their homes.
Eustice said without the deal some of Britain's meat and
poultry processors would have run out of CO2 within days.
"We know that if we did not act, then by this weekend or
certainly by the early part of next week, some of the poultry
processing plants would need to close," he added.
He said the impact on food prices would be negligible.
But the boss of supermarket Iceland said the temporary
arrangement would not solve the food industry's problems.
"A three week deal won’t save Christmas," said managing
director Richard Walker. "And certainly won’t resolve the issue
in the long term."
The British Poultry Council welcomed the deal but said the
industry was still facing huge pressures from labour shortages
and estimated Christmas turkey production will be down by 20%
this year.
Similarly the British Meat Processors Association expressed
"huge relief".
"We are focused on re-establishing (CO2) supplies before
Friday this week which is when around 25% of pork production was
in danger of shutting down," it said.
Britain's Food and Drink Federation said there will still be
shortages of some products though they will not be as bad as
previously feared, while the British Soft Drinks Association
warned it would take up to two weeks before production from CF
made any positive impact on market conditions.
Marks & Spencer, which typically sells one in four
fresh turkeys consumed in the United Kingdom at Christmas,
struck a more optimistic note, saying it was confident of full
supply.
Britain's opposition Labour party said the government needed
to explain the contingency plans in place in case the C02 issues
are not resolved in three weeks.
($1 = 0.7328 pounds)
(Reporting by Guy Faulconbridge, Kate Holton and James Davey;
additional reporting by Nigel Hunt and Elizabeth Piper
Editing by Jane Merriman, Alexander Smith and Emelia
Sithole-Matarise)
