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CO2 shortage threatens soft drink industry

on 16 May 2020  Posted by e107  Category: Food  Comments: 0

Original Article on Forbes

Draft beer relies on carbonation, as does anything with bubbles in a can.
Draft beer relies on carbonation, as does anything with bubbles in a can. GETTY
Soft drink and beer makers are scrambling for access to CO2, a key ingredient in the carbonization used to make their products after coronavirus shutdowns have closed off their access to the chemical.

“The supply is rapidly deteriorating,” says Geoff Cooper, president of the Renewable Fuels Association, which represents the ethanol industry. “Absent of some intervention to keep these facilities running, it will further deteriorate. We’re on the verge of something fairly disruptive. It’s going to be hard to come by.”

A coalition of associations from beer and meat packers, which use it for slaughter and refrigeration, sent a letter to Vice President Mike Pence on April 7, 2020, expressing “strong concern” about the shortage and asking for government intervention as ethanol plants were forced to close in droves due to the coronavirus crisis. CO2 production at ethanol plants, which produce carbon dioxide as a byproduct from fuel production, was down about 20% at the time.

Production is now down 30%. In the past two weeks suppliers have started breaking contracts and preparing for shortages as five more ethanol plants have either closed or significantly reduced output. Of the 45 U.S. ethanol plants that sell carbon dioxide, 34 are closed, while other sources from ammonia plants and oil refineries are also declining due to the crisis.

A serious crisis will hit in May without government help, says Rich Gottwald, the CEO of the Compressed Gas Association. Within the next four weeks, he expects production to reach a more than 70% shortfall. “It continues to get worse,” Gottwald says, who adds that he is hopeful after recent discussions with the federal government. “There will be shortages. The entire food industry understands the challenge now. Everything is so interconnected.”

The bigger companies will fare better but it has independent producers like Darin Ezra scrambling. The CEO of manufacturer Power Brands has spent 15 years consulting on formulations and ingredient sourcing used for new launches at companies including Pepsi, Starbucks SBUX and Gatorade. For the past few weeks, his time has been spent securing CO2, normally an abundant commodity, from new sources and even overseas markets.

“The main ingredient for most beverages in America is in very bad shape,” says Ezra. “I told my plant managers to fill out every single tank that they can find and try to find new sources because we expect it to go from bad to maybe a serious problem.”

If it gets worse, he says “that means that a lot of carbonated soft drinks will simply not be produced.”

Beer, spiked seltzer and other alcoholic drinks all require CO2.
Beer, spiked seltzer and other alcoholic drinks all require CO2. AFP VIA GETTY IMAGES
Which means the shortage will threaten some of the hottest parts of the $28 billion carbonated drinks market—including sparkling water and hard seltzers, which have surged in recent years amid a popularity boom. Spindrift and White Claw declined to comment over whether they are planning for a shortage or if production will be impacted in the future. La Croix, owned by a publicly traded company, sources from a number of national suppliers and says it does not anticipate a supply issue.

The beer industry uses 14% of the CO2 produced in the country. Bob Pease, Brewers Association CEO, says they first started worrying about the shortage earlier this month, when a member notified the organization that its CO2 supplier had suddenly broken the contract and would only be able to deliver half of the expected order. Prices went up 25% after that. Now that deal is the norm for most craft brewers, Pease says.

“That certainly got our attention. No CO2, no beer, bottom line,” adds Pease. “This is an issue that has come up really quickly on us. It is the last thing my members need, with the collapse of the hospitality industry.”

Big producers can often recapture some of the CO2 they use with pricey machinery, but 99% of craft brewers don’t have those capabilities, while most independent beverage brands rely on contract manufacturers that are also without the means of a Pepsi or Coca-Cola KO. Because of that, small food and beverage businesses will likely be hit hardest.

Lifeaid Beverage CEO Orion Melehan says he first asked his contract manufacturer earlier this month to find out if they thought it would be a problem for his line of functional drinks, all carbonated. In fact, the factory had decided to breach its exclusive contract with its longtime carbon dioxide supplier to get into business with a back-up. He adds that some industry experts expect there to be “some rationing for brands at our scale and emerging brands.”

“It would have catastrophic implications,” says Melehan, who cofounded Lifeaid in 2011. “There’s already a can shortage that’s been with us for 18 months. Just as we thought we were coming out of that, the CO2 shortage hits us out of left field. We’re dodging so many balls.”
[Submitted by Sysop]

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