An energy crisis is exposing the vulnerability of food supply chains.
As soaring gas and power prices hit industries across Europe, fertilizer plants halted or curbed output in the past week or so, threatening even higher crop nutrient costs and potentially smaller harvests if farmers cut back on the key input.
In the U.K., it also raised the specter of an almost immediate shortage of
carbon dioxide, a by-product of fertilizer production and widely by the food and drink industry.
A lack of CO2 would force slaughterhouses — which use the gas to stun animals — to close, at a time when staff shortages have left British farms crammed with roughly 100,000 extra pigs. It’s hitting grocery stores, too, because CO2 is used in packaging to extend the shelf life of food and for the “dry ice” that keeps items frozen during delivery, as well as giving soda and beer their fizz.
The risk to food supplies is so great that the U.K. government stepped in to help get a fertilizer plant running again, at least for a few weeks.
But the threat may be far from over. About half of Europe’s ammonia capacity is probably at risk of shuttering or curtailing output, or already closed, consultancy CRU Group said.
Tighter fertilizer and CO2 markets may further push up global food prices, which are already near a decade-high. At some point farmers may refuse to buy the nutrient or Europe will increase imports, IHS Markit said. In China, authorities have been urged to ensure stable prices and prioritize supplies of raw materials and energy to chemical fertilizer companies.
Crop trading giant Cargill has offered a ray of hope. High food costs driven by supply-chain snarls and other disruptions hurting the sectors will prove “transitory” and should dissipate in time, its chief said.
—Nicholas Larkin in London
More than 1.5 million households in Britain are being forced to switch energy suppliers as soaring gas and power prices cause retailers to collapse. The crunch is forcing large industrial uses to curtail output and roiling the country’s food sector.
Today’s Must Reads
- Cut supply | The Covid-19 outbreak depleted America’s meat reserves, and new data from the U.S. shows they still haven’t recovered.
- Fertilizer risk | High prices for nutrients could mean weaker harvests and bigger grocery bills next year.
- China warning | China once again warned of the impact of soaring energy prices on fertilizer supplies and signaled concern that food security could be affected.
- Temporary spike | The chief of giant crops trader Cargill says soaring food costs driven by supply-chain snarls and other disruptions hurting the sector will prove “transitory” and should dissipate in time.
- CO2 crisis | The government-brokered solution to a CO2 shortage comes at a cost — prices for the gas will rise sharply, adding to a raft of pressures already squeezing the food sector.
On the Bloomberg Terminal
- Gas concern | Soaring European natural-gas prices remain an immediate concern to international nitrogen markets, yet it’s somewhat tempered by the U.K. plan to aid a plant start up again, Bloomberg Intelligence said.
- Food inflation | European packaged-food companies were always going to struggle to match 2019 earnings in 2021, and this may be made even more difficult by rising input costs and supply-chain disruptions, Bloomberg Intelligence said.
- Use the AHOY function to track global commodities trade flows.
- Click HERE for automated stories about supply chains.
- See BNEF for BloombergNEF’s analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
- Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.
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