Summer is supposed to be high season for pubs and restaurants in the U.K., but soaring inflation and rising energy costs may soon start cutting into the supply of British pubs’ life and soul: beer.
Times have been hard for the British hospitality industry so far this year, as the highest annual inflation rate in 40 years has hit pubs and restaurants hard.
But the pain is likely far from over, as a looming beer shortfall could put more strain on supply chains and force prices even higher.
A pause in fertilizer production in the U.K. due to rising energy costs is cutting the country’s available supply of carbon dioxide, an essential ingredient to producing carbonated drinks including beer, warns the British Beer & Pub Association, a trade association representing U.K. brewers and pubs.
“A guaranteed supply of CO2 is essential for operations across pub and brewing businesses and this announcement comes at a time when they are already facing extreme rising costs, threatening to close businesses and damage people’s livelihoods,” Emma McClarkin, chief executive of the Beer and Pub Association, told Fortune.
Carbon dioxide shortage
On Wednesday, CF Fertilizers—one of the largest fertilizer producers in the U.K.—released an extremely consequential statement for British brewers and pubs.
The company will be temporarily suspending its production of ammonia at one of its largest plants, citing rising costs for natural gas and carbon leading to “uneconomical” market conditions.
Ammonia is a key ingredient used in fertilizer, but the manufacturing process behind it also creates a very useful byproduct: carbon dioxide. Producers like CF Fertilizers then sell the resultant CO2 to brewers who use it to carbonate beer and give it its distinctive fizz.
But the halt in ammonia production means that brewers and beer lovers won’t be able to rely on CF’s CO2 for a while.
“Once the ammonia plant is safely shut down, CO2 production, which is a byproduct of the ammonia production process, will stop until the plant is restarted,” the company said in its statement.
Rising energy costs
CF Fertilizer joins other fertilizer producers, including Germany’s BASF and Norway’s Yara, to have recently halted ammonia production due to rising energy costs.
Natural gas has been in an increasingly severe crunch around the world for months, ever since Russian president Vladimir Putin began cutting off gas flows to Europe as he wages his war in Ukraine.
Over 70% of ammonia manufacturers worldwide rely on processes involving natural gas use—and one 2018 study even found that as much as 5% of the natural gas produced globally is used exclusively for ammonia production.
The ammonia and CO2 byproduct shortfall has come as a blow to fertilizer manufacturers and brewers, although British beer producers are far from the first businesses to be hit by the CO2 shortage.
Last month, Italian mineral water company San Pellegrino announced it would be adjusting its production schedule of fizzy water due to lower CO2 supply, while brewers in New Zealand have also responded to shortages by slowing down production.
The threat to British pubs
For British pubs, the CO2 shortfall could not have come at a worse time.
“The timing of this news couldn’t be worse as our pubs and brewers are already dealing with severe headwinds and pressures on their supply chains,” McClarkin said.
“This decision raises serious concerns for the sustainable supply of CO2 to the brewing and pub industry and could lead to shortages of beer across the country,” she added.
Annual inflation in the U.K. recently hit 10.1%—the highest rate in the G7—primarily led by rising food and fuel costs.
The hospitality sector, including pubs and restaurants, has arguably been the hardest hit by inflation. A recent survey found that only 37% of hospitality businesses in the U.K. are currently turning a profit, as each has struggled with passing on higher costs to consumers.
Unlike inflation in the U.S.—which may have already peaked—U.K. inflation is set to continue rising due to the ongoing energy crisis in Europe, with analysts from Citigroup predicting inflation in the country to go as high as 18.6% come next January.
Rising energy costs could put nearly three quarters of U.K. pubs out of businesses by next winter, according to a recent survey by trade publication the Morning Advertiser.
