The future of the UK’s bioethanol sector – and by extension domestic CO2 gas supply vital to the food industry – remains in the balance after Associated British Foods today announced a consultation to close a key manufacturing site.
ABF this morning unveiled plans, in parallel with ongoing government talks over a bailout, for an “orderly wind-down” of subsidiary Vivergo’s Humberside bioethanol plant.
The move, which follows similar warnings of an “imminent closure” of the UK’s other main bioethanol plant by chemical giant Ensus last week, has raised concerns over the potential of a new CO2 gas supply crisis – an issue that has plagued the food sector for more than seven years.
Concerns over the supply of the critically important gas resurfaced last month, in the wake of the UK/US trade deal announcement announced on 8 May, after the eleventh-hour inclusion of tariff-free access to US bioethanol producers to the UK market.
Both CO2 gas and high-protein animal feed are key byproducts of bioethanol production, which also draws on a significant supply of British wheat as a feedstock. The so-called Economic Prosperity Deal allows access to the UK market for up to 1.4 billion litres of US bioethanol.
CO2 gas is deployed across a number of uses in the food sector, from controlled atmosphere packaging to the carbonation of drinks and in the pre-slaughter stunning of livestock.
But in the wake of the trade agreement, both Ensus and Vivergo had warned they would effectively be priced out of the market, leaving their business models “unviable”.
Vivergo, which currently does not produce CO2 gas but had plans to do so, yesterday told The Grocer it had, “at the request of the government”, agreed “to postpone closure decisions for 24 hours while discussions continue on the appropriate process for resolution of the issues facing the UK bioethanol industry”.
Government talks underway
However, in an ABF trading update to the London Stock Exchange this morning, the food giant said, despite the government having “now committed to formal negotiations to reach a sustainable solution”, and “given the outcome of the negotiations is uncertain”, it would also pursue plans to close its plant before the end of its financial year on 13 September.
“This process will conclude with a major decision to be made on the plant’s future, which will depend on whether the negotiations deliver a credible route forwards,” ABF said in a separate statement.
The announcement appears to have caught the government off guard, with a spokesperson for the Department of Business & Trade stating it was “disappointing to see this announcement after we entered into negotiations with the company on financial support yesterday”.
They added: “We will continue to take proactive steps to address the long-standing challenges the company faces and remain committed to working closely with them throughout this period to present a plan for a way forward that protects supply chains, jobs and livelihoods.”
It comes as Ensus – which supplies about 30% of the UK’s CO2 gas needs – last week said the impact of the US trade deal meant its Wilton biofuels site on Teeside also faced “imminent closure”, adding the deal had “fundamentally undermined its business position”.
“We are at the eleventh hour and the government urgently needs to find a solution to a crisis of its own making,” said Ensus UK chairman Grant Pearson. “We need a solution which will not only save these skilled jobs on Teesside, but also prevent a catastrophic knock-on effect in other vital sectors of the economy.”
Speaking today, the business confirmed it too had been in discussions with government “acknowledging the economic challenges it is facing as a direct result of the recent US-UK trade deal”.
It added: “We welcome the secretary of state’s decision to appoint external advisers to work closely with the business to understand the impact in greater detail and address our concerns.”
E20 fuel mandate
The Grocer understands crisis talks on a potential government rescue deal for Ensus and Vivergo could centre on whether it will agree to mandate the rollout of E20 fuel – a blend of 20% ethanol and 80% petrol – across the UK’s forecourts.
The current industry standard is E10 fuel, which contains 10% ethanol. An agreement on this change could potentially allow for an increase in demand for bioethanol – helping maintain the viability of Ensus and Vivergo’s business models, while also safeguarding demand for British wheat as a feedstock for the fuel.
The potential for shortages of CO2 has raised fears of a fresh supply crisis of what is described as a critical commodity for the food sector. The UK faced shortages in the summer of 2018 due to a series of supply chain disruptions, with a 2019 FDF report warning of ‘a structural fragility’ in the UK’s CO2 supply chain. This led to tight supply of products ranging from beer to fizzy drinks, chicken and Pork.
Further issues were faced at the turn of 2022, when a government bailout of then-key gas supplier CF Industries expired, only for a fresh deal to be sealed in February 2022.
Since then, CF has exited the UK CO2 market – to which it supplied gas as a byproduct of its ammonia operation, due to its economic unviability.
It is understood about 10% of the UK’s CO2 gas needs are currently derived from anaerobic digestion plants, with 60% imported and the remaining 30% supplied by Ensus, which previously said it could double its production, under favourable circumstances.
One senior food industry source said the government appeared “to have learnt nothing from previous issues around CO2 gas supplies”, and now needed to act with urgency to resolve the issue before it became a full-blown gas supply crisis.
‘Market failure’
Their comments echo those of former FDF CEO Ian Wright, who today told The Grocer the current situation, was “an example of market failure”.
Meanwhile, the likes of NFU president Tom Bradshaw last month said it was “shocking” the commodity had not been included on the government’s National Risk Register.
Responding to the wider situation around gas supply uncertainty, the British Soft Drinks Association told The Grocer that drinks producers were ”monitoring the current situation and have plans in place to help maintain their service to customers, including working with CO2 suppliers to mitigate any possible impact as well as looking at alternative sources”.
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