Associated British Foods has threatened to close one of the UK’s two bioethanol plants if it does not receive state support after the government struck a tariff deal with the US.
It said while the government has committed to “formal negotiations”, it will begin consultations with 150 staff at its Vivergo bioethanol business in Hull “to effect an orderly wind-down”.
As part of an agreement to cut US tariffs, the government will remove a 19% tariff on imports of US ethanol, replacing it with a tax-free quota of up to 1.4 billion litres.
The government said it was “disappointed” to see the announcement after it entered talks with AB Foods on Wednesday about financial support.
The Vivergo bioethanol plant is the UK’s biggest. The only other site making the fuel in the UK is Ensus on Teesside, which is owned by Germany’s Sudzucker Group.
Ensus has also said it may have to shut its site because the UK-US trade agreement “fundamentally undermined its business position”.
Under the tariff deal, the US can export 1.4 billion litres of the fuel – equal to the UK’s entire ethanol market – duty free, which means businesses in Britain do not have to pay tax if they buy the American fuel.
In return, the government secured tariff cuts on UK exports to the US, including on British cars.
AB Foods has been lobbying the government for many months about bioethanol, initially about cheaper US shipments coming into the UK.
Ethanol can be made from grains such as wheat and corn, as well as sugar beets, and the US has been providing subsidies and tax credits to farmers and others who produce the fuel.
On top of that, the UK government then struck its trade agreement with the US which removes import duties on American ethanol.
The agreement is seen as a big win for farmers in states such as Iowa and Nebraska, which are major producers of ethanol and were part of US President Donald Trump’s support base in last year’s election.
AB Foods had set a deadline of Wednesday, 25 June to reach an agreement with the government about support which it said had lapsed.
But the Department of Business said that it had entered into negotiations with the company on that day.
AB Foods said unless help was provided in the form of short-term funding of Vivergo’s losses and a longer-term solution, the plant will stop manufacturing before 13 September.
The news from AB Foods came on the same day that the government announced a trade plan aimed at boosting exports and protecting UK firms from cheap imports.
On Wednesday, Karl Turner, the Labour MP for Hull East, said: “To lose our bioethanol market would seriously hamper the UK’s ability to reach net zero and devastate communities like Hull in the process.”
The Department of Business is recruiting external consultants to appraise and provide due diligence on a plan for Vivergo – if a plan is agreed.
Labour had pledged to curb spending on consultants in an effort to save £1.2bn by next year.
But it is believed the government will use outside consultants in some cases where rapid and thorough analysis is required.
A spokesperson for the Department of Business, said: “We will continue to take proactive steps to address the long-standing challenges the company faces and remain committed to working closely with them throughout this period to present a plan for a way forward that protects supply chains, jobs and livelihoods.”
The government has said that by 2030, it wants 10% of all fuel used in planes to come from sustainable sources, one of which is bioethanol.
If the Vivergo plant in Hull and Ensus’s site in Teesside shut down, it would leave the UK dependent on overseas suppliers.
Vivergo has warned that 4,000 jobs in the UK bioethanol industry could be affected, including farmers who grow the wheat that produces the fuel.
AB Foods said Vivergo’s wheat purchases ceased on 11 June.
