Worried about the CO2 shortage? The trick is not to panic

Dr Jonathan Seaton, a Reader in Business Economics, discusses the CO2 shortage.

The news seems full of pessimistic reports about bottlenecks; shortages (see KFC in February) and the terminal decline of our favourite products and high street stores like Maplin and Toys ‘R’ Us.

The recent panic at first seems like a very late April fool story.

Concern in many food and drink outlets caused by the shortage of carbon dioxide gas at a time when the planet is suffering record levels of CO2 emissions.

This bizarre circumstance at first seems a blessing – surely CO2 is responsible for global warming and climate change, so any reduction in CO2 must be for the good?

But the sad fact is that the supply chain for modern day food and drink relies on CO2 in the processing and manufacture of some key summer foods – salads (to keep them fresh), meat (especially chicken and pork), soft drinks and alcohol, such as coke and lager.

Normally we could argue that frozen food should save the day, but the distribution of frozen food is dependent on dry ice, which as you might guess is made from CO2.

This is not just a UK problem but Europe wide, down to bad planning or poor communication industrywide, CO2 being a derived demand (main demand is for fertilizer – CO2 is a by-product), the unexpected summer weather and of course extra demand caused by a certain major sports event – the world cup.

Many might argue that apart from salads a further irony is this crisis might actually be good for our health.

The food industry uses CO2 mainly for the slaughter of animals for our consumption, which we are often told is responsible for our high-fat diets and for soft fizzy drinks which were taxed earlier this year because of their sugar content.

Similarly, carbonated alcoholic drinks depend on CO2, and again alcohol is also heavily taxed to dissuade us from damaging our health.

However, supplier failures are not the only problem here. The reaction to the news by consumers may lead to panic buying and also profiteering by unscrupulous retailers keen to make a fast buck on consumer uncertainty. We often see this problem at Christmas time, parents hotly surfing the internet and rushing round the toy shops for that latest toy everyone must have.

In Economics we talk about markets being ruled by the powers of demand and supply. If supply is constrained – as it may be in this case – then prices could rise.

However, the behavioural aspects of the main agents in the market, consumers and retailers, add more complexity to this traditional story.

Panic buying by consumers, essentially willing to pay anything to grab what they can, in turn resulting in profiteering by the retailers or their suppliers.

The answer should be to keep calm and carry on – but consumers face a dilemma – if they behave calmly not buying large quantities, then others may buy out the stock – so it becomes rational to panic buy.

It is essential in these cases to realise that sometimes these products might not matter much in your life and maybe it’s time to try some alternatives.

In popular culture, Marie Antoinette is said to have replied that the peasants should eat cake if they cannot get bread (or perhaps brioche).

Well, it seems that cake and bread are still on the menu for us – just try and be inventive with your Tofu, Quorn, mushrooms, lentils, beans and pasta salads this summer.

And for those who want a little sparkle in their drink I’m sure Marie Antoinette would argue for Champagne – it makes its own CO2 so should be unaffected by the crisis.

Dr Jonathan Seaton is a Reader in Business Economics in the University’s School of Business and Economics.

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