Carbon Dioxide Shortage: Beer Supply Hit Amid Lack of CO2

Mohit Oberoi, CFA - Author
By

Aug. 4 2022, Published 9:01 a.m. ET

Beer companies have been grappling with a carbon dioxide shortage, which is hurting production and leading to fears of a beer shortage in the U.S. Why is there a CO2 shortage in 2022?

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Carbon dioxide shortage reports are coming at a time when the overall supply chain situation in the U.S. is improving. According to the Consumer Brand Association, the out-of-stock rate for CPG (consumer packaged goods) products is 9 percent, which is towards the upper end of the historical range of 7 percent–10 percent.

The carbonated beverage shortage is improving.

CPG pointed out that the out-of-stock rate for carbonated beverages was 12 percent in June, which was above normal. That said, the out-of-stock rates have greatly improved and in many cases, companies are left with excess inventories. This especially holds for discretionary products like PCs and clothing.

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Why is there a carbon dioxide shortage in the U.S.?

There have been intermittent reports of a carbon dioxide shortage in the U.S. for the last two years. The shortage was part of the broader demand-supply imbalance where companies weren't able to produce enough goods to satiate the demand.

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The immediate crisis is stemming from contamination of carbon dioxide sourced from Jackson Dome in Mississippi, which happens to be the largest natural CO2 production hub in the U.S.

CO2 is also produced by burning ethanol, ammonia, and natural gas. The supply from this channel has been impacted due to maintenance — both planned and unplanned — at several ammonia plants.

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To make things worse, the supply shortfall is coming during peak summer demand for carbonated beverages as well as beer. Several beer companies are grappling with a carbon dioxide shortage, which is a key ingredient for beer production.

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There could be a beer shortage.

As beer companies look to shut production due to the CO2 shortage, we could see a beer shortage in the U.S. Several beer companies have been warned by their carbon dioxide suppliers about the supply outage. The companies might not get their CO2 supplies. Given the heat waves sweeping across parts of the U.S., the beer shortage situation could get worse unless carbon dioxide supplies revert toward normal levels.

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The food shortage situation has been improving.

While some feared a massive food shortage in the U.S. in 2022, the situation isn't as dire now. We do have a shortage of some products like peanut butter and Sriracha sauces. However, these are more of an idiosyncratic issue. In the case of peanut butter, a voluntary recall by Jif, the largest producer in the U.S. over potential Salmonella contamination has hit supplies.

In the case of Sriracha, the company hasn’t been able to procure the desired chilies due to adverse weather conditions taking a toll on chili quality. We might also see a turkey shortage this winter as the bird flu outbreak hit U.S. poultry and egg production.

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There are fears about food shortages in vulnerable countries. In most of these cases, more than an actual shortage, it's the dire economic conditions. The countries are struggling to pay for food imports. The rise in food prices, stronger U.S. dollar, and higher energy prices aren't helping the cause of many emerging economies either.

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