Citi has warned that the UK’s recent trade deal with the United States could further erode the already fragile commercial prospects of Vivergo, the bioethanol plant owned by Associated British Foods PLC (LSE:ABF).
In a note to clients, the bank said the removal of tariffs on US ethanol under the new agreement would likely further undermine the viability of the East Yorkshire facility.
Vivergo, based at Saltend near Hull, produces bioethanol, a renewable fuel blended into E10 petrol to reduce emissions, as well as animal feed, a by-product of the production process.
The plant, which employs around 150 people, has been battling low bioethanol prices and regulatory pressure. Production has been reduced and losses have mounted.
ABF said last month it was reviewing the future of Vivergo, warning that without regulatory change, it may be forced to mothball or close the facility.
It has since confirmed that the UK-US trade deal would reverse the limited progress made to stabilise the business, which is currently losing around £3 million a month.
For the full year 2024, Vivergo reported sales of £204 million and operating losses of £14 million, although ABF has already fully impaired the asset.
While Vivergo contributes just 1% of ABF’s group sales and 2% of its operating profits, Citi notes that the issue has symbolic and policy relevance.
The company is in talks with the UK government about possible support, but said there are no guarantees of a favourable outcome.
ABF boss George Weston has pointed to what he sees as an uneven playing field, with foreign producers benefiting from subsidies and UK regulation failing to offer equivalent protection.
The government is said to be engaging with ABF, though little detail has emerged on the outcome of those discussions.
Citi sees the Vivergo review as part of a broader cost discipline across ABF’s food and agriculture portfolio, where underperforming assets are under scrutiny.
While the financial impact of any closure would be limited, the decision will be closely watched as a test of how the government intends to balance climate commitments with industrial competitiveness in a post-Brexit trading environment.
ABF shares were static at 2,077p.