Carbon dioxide shortage will hurt good people

It was hard not to crack a smile at my local New World supermarket the other day. In an aisle with remarkably empty shelves was a hastily generated sign apologising for the lack of eggs.

It gently explained that the egg shortage was only temporary but as a result customers were restricted to just one.

A friendly New World staffer helpfully explained that it meant one box, not just one egg. She said not to worry, so long as people didn’t try to be dicks and stockpile eggs we’d get through fine.

The national egg shortage has resulted from a change of regulation regarding egg farms, to do away with the practice of battery hens.

The change in legislation was something that was well telegraphed in advance and the implications thought through.

To help mitigate the transition, egg buyers are going around farm sellers while at the same time many Kiwis have decided to invest in their own chooks. Trade Me reported that hen sales were up 190% this month.

Another thing that’s in short supply at the moment is carbon dioxide. Specifically, food-grade CO . Sadly the CO shortage was less well telegraphed in advance and is much less easily mitigated.

It’s not something you can produce at home.

Well, at least not in a form that will put fizz in your beer.

As I noted last year, historically 75% of New Zealand’s food-grade carbon dioxide was produced as a by-product at the Marsden Point oil refinery, and the rest came out of Todd Energy’s Kapuni plant in the Taranaki. Marsden Point was shuttered last May, and now Kapuni has closed its lines for maintenance and repair.

What that means is that New Zealand is now 100% dependent on imported CO for food-grade applications. These applications range from dry ice and plant cleaning though to meat processing and, of course, beer, an industry close to my own heart.

While the brewing process naturally creates a small amount of carbon dioxide, it’s hard to capture effectively, and (for most brews) accounts for only a fraction of the volume needed.

The problem is that about 90% of New Zealand’s food-quality CO is taken up by a handful of large users. This includes hospitals, meat processing plants and dairy.

By comparison, there are thousands of users who use the other 10% and they have very limited flexibility. They operate on a hand-to-mouth existence with individual cylinders of the precious gas.

Included in this group are the about 220 idiosyncratic and wonderfully creative breweries that make up the craft beer industry in Aotearoa.

These companies are getting a double whammy, as they need CO in the brewing process to produce beer and put fizz in it, but they also need it in tap rooms and on premises to propel it through the pipes.

I t’s a sector that’s had a bloody challenging few years. The pandemic not only flattened the on-premise serving of brews, but also robbed the sector of staff.

At the same time, transportation charges have doubled in the past couple of years and interest rates have gone from 2% to 8%.

So if you were a boutique brewer who had been doing something like 250,000 litres a year – with revenue of $2 million, earnings of $100,000 and bank debt of, say, $250,000 – you’re now paying twice as much for transport, four times as much on interest and up to three times as much for CO .

That’s if you can get CO at all. Put it all together and that brewer will be in negative earnings territory.

No wonder, then, that brewing-related businesses are closing and others are seeking additional funding. Meanwhile, banks are getting less flexible about debt servicing.

While there have been some great examples of founders doing well as a result of their hard work and tasty beverages (Emerson’s and Panhead selling to Lion/Kirin and Tuatara selling to DB/Heineken), you don’t see too many craft brewers driving a Mercedes or buying houses in Queenstown.

Rather, they are in the industry because they love it and are passionate about brewing great beer.

Often this sees founders working 70 hours a week and paying themselves a pittance or getting helped out by friends and family who drop in money to get them through.

I’m worried that this latest development, the great CO shortage, as it’s being called, may prove too much for too many.

This is bad for the brewers, bad for beer drinkers, bad for the industry and bad for the country (beer is a $2.8 billion per year income producer).

One of the wonderful things about the industry is the creative collisions that take place as workers from the various businesses move from one brewery to another and cross-fertilise.

Some may argue that 220 breweries is too many for a country of 5 million and that some rationalisation was always going to happen, but that doesn’t mean it’s any less painful.

Although production at Kapuni is meant to resume from early February, it will be at a third of normal capacity and then the plant will close completely for three weeks at the end of February.

Hopefully when it comes back on stream it will be at full capacity, but even that will meet only 25% of demand.

This means imported CO will make up the lion’s share of Aotearoa’s food grade for as long as I can see.

Given that we used to produce it locally at Marsden Point, you could be forgiven for thinking it’s bizarre that we are penalising the planet further by radically increasing the number of carbon miles to source and supply more carbon dioxide.

There’s no panacea here. A combination of increased prices to consumers, rationalisation of product lines, the mothballing of some breweries, increased use of alternatives such as nitrogen and (for the handful who can afford it) the introduction of carboncapturing technology will probably get us through.

But be in no doubt, Aotearoa will not see a return to ‘‘normal’’ CO supply this calendar year.

And good people will hurt.

So, what are the learnings? First, don’t underestimate the law of unintended consequences.

When the petrol companies and the Government made the call to close down on-shore petroleum refining in 2021, noone appears to have thought about the impact on food and hospital-grade CO .

Second, the big kids in the industry need to get a whole lot better at communications. Whether it’s the energy companies, the gas distribution companies or the Government, they all need to lean into the problem in the public forum.

Most players have learnt about the developments from the news media, which is not ideal.

Lastly, the one thing that will really kneecap the industry right now is stockpiling. There simply isn’t a ‘‘float’’ of CO , and to hoard it means denying others.

As the New World staffer noted to me about egg hoarding, this is no time to be a dick.

‘‘ You don’t see too many craft brewers driving a Mercedes. They are in the industry because they love it.