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Jeremy's Blog 24th September 2021: Risks and Resilience - The Lessons of CO2

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 9th September 2021

“‘Just in time’; that’s almost late”: a Cornish manufacturer’s description to me in December 2018 of the then supply chains. Current experience endorses his view of the weaknesses in ultra-efficient systems, lacking resilience when facing the problems we see on a national, continental and global basis. Stocks have been seen as a cost, an insurance provision not worth paying. The risks in systems without reserves or spare capacity are now revealed.

This week’s carbon dioxide issue is simply a symptom, now also seen across Europe as high gas prices close nitrogen fertiliser plants, cutting limited supplies of CO2. CO2 has been an overlooked useful by-product but is, perhaps briefly, becoming the object of production to sustain business from the white meat supply chain to nuclear electricity. The value of that CO2 is now revealed as present markets expect its price for industrial uses to rise from £200/t to £1,000/t, reflecting the current cost of the feedstock gas. The relationship to atmospheric CO2
looks like that of bottled water to rainwater.

What of nitrogen fertiliser, which today seems to be the by-product? As seen before, demand from strong produce prices drives higher values but the cost of gas makes it expensive to produce. Basic availability may be as much an issue for at least the start of this season.

World supply chains have been summarised as half a cycle out of kilter, with containers (often with goods in them) and ships in the wrong places as economies recover and then relapse and ports do and then do not work. Materials and parts become expensive or unavailable. Possibly structural changes in labour markets see lorry driver shortages across the developed world, with pay and other factors beginning to respond.

Much of the food supply chain is bedevilled by staff shortages but the market power of major buyers appears a key bottleneck, inhibiting the price changes needed for flexible adjustment to such systemic pressures.

Global conditions seem less stable and shocks come more often alongside the now pervasive issues of climate change and the balance with nature. This is not our first energy price shock. We had a CO2 shortage only in 2018. Supply chains, successively juddering, are in multiple turmoil. Finance, with regular crises, had a major shock in 2008 – Chinese debt may now be the issue. Rising risk requires greater resilience, carrying more reserves and the flexibility to adjust to prices in a fully functioning marketplace as we find the new economy.

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