The use of corn-based ethanol required by the federal Renewable Fuel Standard mandate has dramatically distorted the market and increased costs throughout the food supply chain to the tune of billions of dollars, according a report by PricewaterhouseCoopers, for the National Council of Chain Restaurants.
NCCR commissioned PwC to study the potential cost and economic impact of the RFS, which requires ethanol to be blended into gasoline, on the chain restaurant industry. In Federal Ethanol Policies and Chain Restaurant Food Costs, PwC estimated the impact under several scenarios and concluded that the RFS mandate could cost chain restaurants up to $3.2 billion annually, with quick-service restaurants witnessing cost increases upward of $2.5 billion, and full-service restaurants seeing increases upward of $691 million.
“The RFS mandate artificially inflates the price of corn, which increases costs throughout the system, from cattlemen and poultry and pork producers to dairy farmers and restaurant operators,” NCCR executive director Rob Green said. One owner of a four-unit Wendy’s franchise estimates that the mandate is costing him $20,000 to $30,000 per restaurant, according to the NCCR.
However, Brent Erickson, executive vice president of the Biotechnology Industry Organization’s industrial and environmental section, said that the NCCR report ignores a recent EPA study in which 89 percent of 500 modeled scenarios found that the law had no impact on demand for ethanol and by extension corn and food prices. The EPA said that the other 11 percent of scenarios were both “very unlikely” and small, Erickson said.
Earlier this month, the EPA rejected requests to waive the federal RFS, effectively disagreeing with states and industry groups that argued the mandate was pushing up corn prices following a catastrophic drought that ruined crops in the Midwest. The agency, which based its decision on economic analyses and modeling done in conjunction with the US Department of Agriculture and Department of Energy, concluded the mandate would not cause severe economic harm. An analysis with the USDA showed that, on average, waiving the Renewable Fuel Standard would only reduce corn prices by about one percent.
A report released by Environmental Entrepreneurs in September showed that biofuel production capacity increased from 437 million gallons in 2011 to more than 685 million gallons in 2012. By 2015, the industry has the potential to produce 1.6 billion to 2.6 billion gallons of renewable fuel, the report forecasts.