The taxpayer could pay tens of millions of pounds to subsidise a major US-owned fertiliser manufacturer to ensure the supply of CO2 for the food sector continues amid the energy crisis.
A deal brokered by Business Secretary Kwasi Kwarteng will see the UK Government provide “limited financial support” towards CF Fertilisers’ running costs to prevent a food supply shortage at Britain’s supermarkets.
The agreement will be in place for three weeks while the “CO2 market adapts” to the surge in global gas prices, according to the Department for Business, Energy and Industrial Strategy (Beis).
Environment, Food and Rural Affairs Secretary George Eustice said the final details of the agreement were still being worked on but “it’s going to be into many millions, possibly the tens of millions”.
CF Fertilisers suspended production at plants in Teesside and Cheshire due to soaring energy costs as global gas prices spiked.
The CO2 produced as a by-product at the plants is vital to the food industry, where it is used to stun animals in slaughterhouses and to keep packaged products fresh.
Mr Eustice defended the decision to pump tax money into the firm.
“The truth is, 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, and then we would have animal welfare issues – because you would have lots of chickens on farms that couldn’t be slaughtered on time and would have to be euthanised on farms. We would have a similar situation with pigs,” he told Sky News.
“There would have been a real animal welfare challenge here and a big disruption to the food supply chain, so we felt we needed to act.”
It was “justified for the Government to intervene in this way, in a very short-term, targeted way” because “if we didn’t, there would be a risk to our food supply chain – that’s not a risk the Government is willing to take”, he told BBC Radio 4’s Today programme.
Mr Kwarteng said the decision would avert disruption in the “many critical industries that rely on a stable supply” of carbon dioxide.
CF Fertilisers produces around 60% of the UK’s CO2, used primarily by the food sector but also in the health and nuclear industries. It suspended operations at its Teesside and Cheshire plants because of high global gas costs.
Beis officials said the “exceptional short-term arrangement” with the American business would allow the company to immediately restart operations and produce CO2 at its Billingham plant in Teesside.
Mr Eustice suggested the second plant would also be brought back online.
He said the food industry will have to accept a major hike in C02 rates, which could increase fivefold from £200 a tonne to £1,000, but because the gas makes up only a small part of overall costs there would not be a “major impact on food prices” for consumers.
Ian Wright chief executive of the Food and Drink Federation, said: “I think it’s a temporary solution but it’s a welcome one, and means there won’t be many noticeable shortages on the shelves, although there are already some because of staff shortages.”
He said the industry needs to “get its act together”.
Mr Wright also warned that although food would continue to enter warehouses in the lead-up to Christmas, “the supply chain is so fragile that any other shock might do it in as well”.
Mr Eustice told LBC Radio “Christmas is safe” but acknowledged “there are challenges in the food supply chain”.
The shutdown of CF Fertilisers’ plants coincided with maintenance at two other factories which supply CO2 to the UK.
Mr Kwarteng told MPs the Government had moved “very rapidly” to deal with the crisis.
“With regard to the CO2 situation, it was abundant, it was very cheap, and a lot of people, I think, were probably surprised at what happened,” he said.
“What I would say about that is that we very rapidly dealt with that situation. I met with the CEO of the relevant company twice, on Sunday and Monday, and we’ve come up with a solution – which I have to stress is very much short-term support, there’s no question of us essentially writing a cheque to this company indefinitely.”
Mr Kwarteng said the three-week limit for the taxpayer support was because “in a critical intervention like that you have to have a way of exiting the arrangement” and “I’m confident that we can get other sources of CO2 in that period”.
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