Shoppers could face rising bills as meat manufacturers face sharp cost rises due to the soaring price of CO2, industry sources have said.
Meat and poultry supplies faced major disruption due to a shortage of CO2 caused by two sites in the north of England halting production last week.
However, a deal struck by Government and CF Fertilisers, part of US-owned CF Industries, on Tuesday evening means firms are expected to see CO2 supplies return on Thursday.
Environment, Food and Rural Affairs Secretary George Eustice said that companies will however have to accept a major hike in CO2 rates, which could increase fivefold from £200 a tonne to £1,000.
He stressed that the surge in prices would not be a “major impact on food prices” for consumers due to its small proportion of overall costs.
However, an executive at a major meat supplier told the PA news agency that his firm could face an extra £1 million in costs every month due to the jump in prices.
He added that this is likely to mean that prices will increase for customers.
“They have mentioned a sharp potential price rise and we use 600 to 700 hundred tonnes a week, so that’s probably going mean more than a £1 million extra a month,” he said.
“We are still finding out exactly what prices will be and are due to have conversations with retailers now, but a jump like that is obviously going to be a bad thing for consumers in the long run.
“Suppliers can try to take some of that but there is so much pressure elsewhere and the margins are so tight.”
The executive said that his firm has around a week of CO2 left so believes empty shelves will be avoided, assuming the supply is restarted without significant further disruption.
The British Meat Processing Association (BMPA) also warned that CO2 price shifts could “prompt price distortion in other markets”.
Industry leaders have stressed that there needs to be clarity over the long-term security of the UK’s CO2 supply.
A spokeswoman for the BMPA said: “Yesterday’s announcement that the Government has secured a deal with CF Industries to reopen one of their fertiliser plants comes as a huge relief in the short term and will allow meat producers to continue their operations beyond next week.
“But, we do not underestimate the challenge that faces us over the next three weeks.
“If we are to return to a normal functioning of the CO2 market, there will need to be some complex discussion on how to re-negotiate and restructure CO2 supply and pricing in the UK.”
The trade body said it is focused on ensuring supply is readily available by Friday, which is “when around 25% of pork production was in danger of shutting down”.
Meanwhile, brewing and pub bosses also called for a “longer-term solution” to help avoid similar further disruption.
Emma McClarkin, chief executive of the British Beer & Pub Association, said: “The short-term arrangement between CF Fertilisers and the Government is welcome news and provides some relief that the supply of CO2 can resume.
“However, the sector urgently needs a longer-term solution to avoid further, sudden outages – particularly as energy prices are likely to remain high for some time.
“With ongoing supply chain disruption still impacting on our sector and the busy Christmas period fast approaching, the burden of additional costs or further interruptions to the supply of CO2 would be extremely damaging to the recovery of the sector.”