Soaring gas prices in Europe have resulted in disruption to fertiliser production in the UK and mainland Europe, with two major producers announcing a curtailment of production. This comes on the back of already increased fertiliser prices.

Food manufacturers, from meat processors to breweries, also have reason for concern as the supply of carbon dioxide, a byproduct of fertiliser production, has become constrained in the UK, with some concern for European supplies.

The announcement by Yara, Europe’s largest producer of nitrogen, that it is curtailing around 40% of production at a number of plants this week due to high gas prices will be a concern for domestic fertiliser producers and farmers alike.

Yara’s announcement followed CF Industries, one of the world’s biggest fertiliser producers, which suspended production at two large UK plants early last week.

Industry analysts report that a Spanish fertiliser producer is set to curtail production at one site from early October, with further curtailment mooted among producers across Europe.

These closures are a result of surging EU prices for gas, which is the key ingredient in the production of nitrogen fertiliser.

While gas prices have been trending upwards since the start of the year, they have risen dramatically since the start of August.

This price movement has been underpinned by lower natural gas supply and unexpected higher energy demand as economies rebound from Covid-19 lockdowns faster than anticipated.

This development follows price increases during the summer months which were linked to low fertiliser stocks and limited supply growth.

Limited supply

European producers claim that fertiliser raw material costs increased sharply as input manufacturing cutbacks due to Covid-19 limited supply. They also pointed to increased energy costs as a key factor. The industry has also had to contend with the increased global shipping costs.

What is driving natural gas prices?

Natural gas prices have increased by almost 50% since the start of June as a result of tight supplies and increased demand, particularly in Asia.

In northern Europe, there are reports of weak imports and reduced stocks. Analysts report that at 70% full, gas supply stocks are lower than usual. Stock levels this time last year were at 93%.

The tight supplies come on the back of a prolonged period of cold weather last winter in which stocks were depleted in Europe. The commissioning of a new gas line between Russia and Germany is awaiting regulatory approval.

As the decarbonising of Europe’s electricity supply continues, the option to use coal to generate electricity is becoming more limited and is placing further pressure on gas supplies.

Increased gas imports would relieve the current price pressure. However, there is no sign of this at present. The commissioning of the Russian-Germany gas line would not see gas flowing in the near term. However, it would provide greater optimism in the market.

Concern for carbon dioxide supplies

Carbon dioxide (CO2) is a byproduct of fertiliser production and made headlines in the UK last week as UK meat processors and food manufacturers expressed significant concern about CO2 supplies following the closure of the two fertiliser plants that supplied 60% of the UK’s food-grade CO2.

CO2 is used in the pig and poultry processing sector and is also used widely in the food manufacturing industry in meat packaging, brewing, soft drinks and in modified atmosphere packaging to maintain quality and shelf life of a range of fresh food products.

It is understood that there are no immediate supply concerns in the Irish meat processing supply chain.

Meat Industry Ireland director Joe Ryan acknowledged the concerns emerging in the supply chain, noting: “We are aware of CO2 supply issues in the UK and northern Europe. The processing sector will continue to monitor this carefully in the coming weeks. A similar supply shortage situation deteriorated quickly in 2018. We will work closely with the Department of Agriculture to ensure that the food sector is prioritised for CO2 supply.”

While there may be no immediate threat to the Irish food processing sector, further closures among European fertiliser producers may lead to supply challenges.

Comment

As world leaders meet in New York for the UN Food Systems Summit to discuss sustainable food systems (see opposite page), soaring gas prices in Europe and the knock-on effect across the agri-food sector serve as an example of the type of challenges farmers may face in the green transition journey.

The next decade may well be a fine balancing act as the agri-food sector works to reduce greenhouse gas emissions and increase biodiversity while managing the vagaries of commodity markets in which the farmer is the ultimate price-taker.

The balancing act that farmers will face in adopting new technology, some of which is yet to be proven, successfully applying and replicating research while managing production and cost efficiencies will be mirrored across other sectors on which the agri-food sector depends, such as energy.

An acknowledgment of the significant challenges ahead and a commitment to a meaningful financial safety net to support the transition will be as important determinants of success as high-level political commitments.