From Belgian beer to German tomato, Europe's energy crisis is spilling over

The spillover on food and drink supplies will likely intensify, forcing businesses and consumers into tough decisions. PHOTO: BLOOMBERG

BRUSSELS - The Belgian brewer of Delirium Tremens beer is facing a real risk of halting production for the first time in more than a century as Europe's energy crisis creates unexpected ripple effects across the region.

From German tomato to Swedish bread, Russia's squeeze on gas supplies is starting to hit sectors well beyond utilities and energy-intensive industries. The spillover on food and drink supplies will likely intensify as temperatures drop and households require heating, forcing businesses and consumers into tough decisions.

Brewery Huyghe, located in the Belgian village of Melle, considered shutting production because of a 13-fold surge in the price of liquid carbon dioxide, which it uses to make beer bubbly. It is hoping a court, which is expected to rule on Wednesday, will thwart its supplier's force majeure.

"I have enough CO2 to last me until Tuesday," Mr Alain De Laet, owner of the family-run company, said by phone last week as he searched for a last-minute alternative. "I may need to stop production until I find a Plan B, which would be the first time since 1906."

The European Union is trying to stem the crisis caused by Russia's gas cuts, which last year supplied about 40 per cent of the bloc's demand for the fuel. Commission President Ursula von der Leyen on Wednesday is set to propose a mandatory target to cut power use - a step towards rationing - along with measures to funnel energy company profits to struggling consumers.

The brewery's woes were triggered by a chain of misfortunes that illustrate how interconnected Europe's economy is. Norwegian fertiliser giant Yara International halted ammonia output at a plant in the Netherlands. That in turn hit Huyghe's supplier Nippon Gases, which demanded €3,350 (S$4,700) a tonne for CO2 instead of €250 previously.

"Currently running production based on gas in Europe is not profitable," Ms Tiffanie Stephani, Yara's vice-president of European government relations, said via e-mail. "We continue to monitor the situation and adapt our production."

Nippon declined to comment citing the ongoing court case.

Huyghe is not alone. Carlsberg said it may need to "significantly reduce" or halt beer production in Poland due to a shortage of liquid CO2. A handful of other Belgian brewers are also affected by the issue and concerns over contagion are growing.

"A couple of months ago, the industry worked like a Swiss watch," said Mr Krishan Maudgal, head of the Belgian Brewers Association. "Because of the new situation with rising gas prices, it has cascaded down the value chain."

Ammonia, which is produced with natural gas, has been hard hit by the price surge sparked by Russia's move to slash gas deliveries in retaliation over sanctions related to its invasion of Ukraine. A wave of shutdowns has left at least half of the region's capacity offline, creating a crunch for fertiliser but also CO2 - a by-product of the process.

Carbon dioxide is a vital part of the food industry. It is used to stun livestock for slaughter, as well as in packaging to extend shelf life and for dry ice to keep items frozen during transport.

British online grocery service Ocado Group said on Tuesday that increased costs for things such as dry ice and energy will likely weigh on profits in the fourth quarter, while shoppers tighten their purse strings. The combination signals how difficult it will be for companies to pass on higher expenses as households struggle to fulfil basic needs.

For Wittenberg Gemuese, the disruption of ammonia production has also meant a loss of the heating and hot water needed to operate its greenhouses.

The German grower of tomato, strawberry and peppers relies on SKW Piesteritz for heat as well as CO2 but was left stranded when Germany's biggest producer of ammonia and urea halted output last week.

"Without heating, nothing works here," said Mr Kevin van IJperen, manager of the facility, which is nearly three times as big as the Pentagon. "We were still lucky as the temperatures were mild in the last week. Had this happened later in the year, we would have had huge losses."

The outage at SKW, which is in talks over a government bailout, poses other risks for Germany's economy. The company covers 40 per cent of Germany's demand for AdBlue, an additive used to make the exhaust of diesel vehicles less harmful. A shortage could force freight trucks off the road.

In Sweden, Pagen, one the country's biggest bakeries, joined other food producers to warn about risks to food supply from surging energy costs and the risks of blackouts.

A one-second electricity disruption in June impacted Pagen's production for four weeks, head of communications and sustainability Berith Apelgren told local media, adding that recurring outages would be "mind-boggling".

Back in Belgium, Prime Minister Alexander De Croo has warned that Europe's economy risks a "full stop" from a domino effect caused by the energy crisis.

"That is why I think that interventions in the gas market are the core thing," he said in an interview. "If you do that right, a lot of the other things are actually less important, because that is the driving element." BLOOMBERG

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